Chinese shares tip into a bear market

Chinese shares tip into a bear market

The Shanghai stock exchange suffered another major fall on Wednesday, closing down 4.3pc to bring the declines over the past two weeks to around 20pc, a technical bear market.

By Malcolm Moore in Shanghai
Published: 11:10AM BST 19 Aug 2009


A Chinese investor monitors screens showing stock indexes at a trading house in Shanghai on August 19, 2009. Photo: AFP

Until this month, Shanghai had been the world's best-performing stock exchange, recording a rise of 89pc as money poured into the market from China's fiscal stimulus policies.

Banks loaned more than £700bn in the first half of the year, and analysts believe a sizeable proportion of that cash flowed directly into speculation. Even after the latest reversal, Shanghai is up some 53pc this year.

State-owned behemoths led the declines, with Baoshan Steel dropping 7.18pc to 7.11 yuan and Angang Steel falling 6.23pc to 13.25 yuan.

PetroChina, China's largest oil producer, fell 2.33pc to close at 12.99 yuan.

China's enormous banks are also reporting interim results this year, and analysts believe their revenues will be down because of lower interest payments.

Property shares were also hit by fears that the housing bubble may also pop. Vanke, the country's largest developer, fell 5.58pc to 11 yuan.

Investors, who maintain a firm belief that the Chinese government will intervene to prop up the market, took flight when no such relief appeared. The only sign of government aid came in the form of editorials in three influential newspapers, talking up the benefits of buying shares.

"Investors are disappointed that regulators failed to take any concrete steps to support the market," said Chen Huiqin, at Huatai Securities.

Chinese institutional investors are also cashing out, in the hope of finding better returns elsewhere after Shanghai's phenomenal rise, according to Zhang Suyu, a strategist at Dongxing Securities.

Other analysts said the falls in the market did not reflect the health of the broader Chinese economy. "Rocketing and slumping has always been a characteristic of the market. It took only one year for the index to rise from 1,664 to 6,124 points and vice versa," said Dong Dengxin, a professor at Wuhan Science University.

The Shanghai exchange is all but closed to foreign investors, while Chinese investors have few other options to place their money, since they cannot buy overseas shares. Consequently, the exchange remains extremely volatile, according to local brokers.