Mainland stocks fall to 42-month low

Mainland stocks dropped to the lowest level in 31/2 years yesterday as poor corporate earnings continued to spook investors.

Analysts warned of further declines, as no policy incentive aimed at pumping up the market seems to be on the horizon.

The Shanghai Composite Index fell 20.97 points, or 0.99 per cent, to 2,092.10, the lowest close since March 3, 2009. The index lost 1.1 per cent this week.

"Investors have totally lost hope," said Shenyin Wanguo Securities analyst Wei Daoke. "They don't have the confidence to hold on to the shares in this bearish market."

PetroChina, the country's largest oil company, reported a 6 per cent drop in first-half profit, falling short of market expectations. The poor result aggravated fears about the market outlook, with some investors questioning China Securities Regulatory Commission chairman Guo Shuqing's earlier advice to buy blue-chip stocks.

In February, Guo encouraged mainland investors to increase holdings of the largest state-owned listed firms, saying that many of them were greatly undervalued. He had predicted investors would be rewarded with an 8 per cent annualised return if they bought blue chips.

Analysts forecast mainland-listed companies would report an overall 10 per cent drop in interim earnings. The reporting season for first-half earnings ends on August 31.

In the past weeks, mainland investors have been expecting Beijing to announce market-boosting measures, such as reducing banks' reserve requirement ratios, to combat the economic slowdown. But there is widespread disappointment now that the government hasn't rolled out any incentives.

The Shanghai index hovered above the 2,100-point level between Monday and Thursday before falling below that level yesterday. The 2,100-point level was held as technically important by some investors, who saw it as the lower band for the index. With that level breached, investors fear further declines, analysts said.

A series of lacklustre earnings reports is expected to hit the market in the coming week, which is likely to exacerbate the weak sentiment. Normally, companies reporting losses or huge drops in profit publish their interim reports during the last week of the reporting season.