By Li Zengxin (chinadaily.com.cn)
Updated: 2008-02-13 17:10

The Shenzhen Component Index, tracking the smaller Shenzhen Stock Exchange, opened lower at 16,663.90, and closed even lower at 16,502.443, down 357.2 points or 2.12 percent from the previous close. Of the A shares, 209 climbed up, 73 fell and 399 saw little change in prices. Transaction value dropped to 26.8 billion yuan from the last trading day before the holiday.

Shenzhen Component Index

Source: sina.com.cn

Today's fall is another full-scale plunge as almost all industrial indices were down except for the agriculture and forestry sector. PetroChina, the most heavyweight stock in the market, lost 3.2 yuan while index-driving banking giants were all down. GD Power Development, however, after a 10 to 10 share replacement and 1.2 yuan profit distribution each share announced on February 5, became the largest trader today and saw its share price rocket over 5 percent against a depressive trend.

Since the start of this year, the Shanghai index has lost 14.7 percent and the Shenzhen index has dropped 6.8 percent in less than two months. By yesterday, 3.3 trillion yuan had evaporated from the stock market, a whole 10 percent lower from the end of last year.

Analysts attributed this round of stock price plunges to short-term discouraging factors, including a worldwide stock sale last week, China's tightening measures finally taking hold, and the prospective of capital dilution from share issues and unfreezing.

Last week all the world's major markets experienced severe drawbacks in light of worsening US economic prospects. After Citigroup and Merrill Lynch announced fourth-quarter losses from the subprime debt crisis, the fourth-quarter US gross domestic product statistics implied a spill-over from the credit crisis to other parts of the world's leading economy.

This Monday, Hong Kong's Hang Seng Index dropped 3.64 percent on its first trading day after the holiday. In the past 12 years, Hang Seng has never dropped on the day immediately following the holiday break. Fortunately, the world's major stock markets started recovering yesterday.

China's most recent bank reserve ratio hike this year, the 11th since 2007, finally got investors' attention. Unlike the previous cases in which when a tightening signal was given out, the market reacted by leaping upward against regulator's intention, this time, the measures started to take effect. That is because the December loan, property and export statistics have all suggested slowed growth, analysts said.

In addition to Ping An's expected 160 billion yuan additional share and bond sales, China's stock market will also face severe pressure from the recent de-freezing of non-tradable shares. Estimated to be sopping up 518.9 billion yuan calculated using prices by February 5, these unfrozen stocks may keep the market from regaining higher positions for now, said analysts.

However, in the longer-run, things could be different. US president George W. Bush is expected to sign on an incentive package worth US$150 billion in a bid to stimulate the US economy through tax cuts to salary earners and corporate taxpayers. In addition, the weakening US dollar left less space for further interest rate raises for China, said experts, and that could be good for China's capital market.

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