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Trend is up but problems persist

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THIS may be a good year yet for Chinese stock markets, despite investors' anxiety about news that there will be more share issues from next month.

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Fears that the new shares - expected to be worth at least 5.5 billion yuan (about HK$5.12 billion) - would flood the markets sent prices tumbling nearly 17 per cent yesterday.

This was the first fall since China announced the ban on treasury bond futures trading last Wednesday and was to be expected given the sharp rise of 54 per cent in the past three trading days.

Still, investors are over-reacting to the decision by Zhu Rongji to lift the ban on new issues.

It could mean a renewed official push for the stock markets is in the offing. The groundwork was laid with the closure of the treasury bond futures market.

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Now that the bubble has burst for bond futures, where can investors - or wheeler-dealers - put their money to earn returns matching the near-20 per cent inflation rate? Beijing maintains a ban on new property projects to help rein in inflation and high growth and commodities futures trading is uncertain, as authorities watch it does not hit the same problems as bond futures.

That leaves the stock markets as the best bet. Analysts believe, despite yesterday's fall, that the trend is likely to be upwards.

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