Shanghai's troubled A-share market opened the new trading year yesterday in bad cheer, falling to a 67-month low on fears new regulations would erode stock valuations and increase the volume of issues. The fall came amid weakness in the Hong Kong market, where the Hang Seng Index hovered marginally above the 14,000-point level before ending 1.35 per cent lower. H shares dropped 1.38 per cent while red chips tumbled 2.6 per cent. In Shanghai, the A-Share Index closed the day down 1.89 per cent at 1,305.053 points, its lowest level since May 1999. Shenzhen's A-Share Index fell 1.77 per cent to end at 322.892 points. The market refused to interpret rumours that a two-day national meeting of the China Securities Regulatory Commission, due to start tomorrow, would produce positive news. Analysts believed the meeting had been convened to discuss better regulation and other measures to nudge the markets out of a 31/2-year slump. They believed the meeting could prove positive for the markets but since the official media had not reported it, most investors did not attribute much importance to it. Most observers blamed yesterday's fall on two policies now in effect. One reforms the process that sets prices for initial public offerings, giving a greater role to financial intermediaries. Market players welcome the new system but say it will result in lower valuations for new shares. The second policy involves rules aiming to stop widespread private sales of non-tradeable state shares in listed companies at less than market value. While investors generally described the new rules as necessary, they also believed the result would be additional secondary share offerings, further driving down prices. A report in yesterday's National Business Daily projected that share offerings could reach 110 billion yuan this year. So even as the general economy enjoys another year of unprecedented growth and prosperity, its stock markets remain mired in gloom. 'Worst hit [yesterday] were petrochemical and vehicle stocks, which funds started to sell,' Shanghai Securities analyst Peng Yunliang said. 'Sinopec cut the prices of diesel and petrol by 150 yuan per tonne. Trading in Chang An Auto was suspended. Investors were bearish on vehicle stocks because of the continuing fall of prices.' Shenyin Wanguo Securities analyst Qian Qimin said trading would remain weak before the Spring Festival.