[20081119] ChinaAfternoonCommentary20081118-Shanghai Securities

Rebound is Blocked, Market Plunged by over 6%
 
Shanghai12th November13th November14th November17th November18th November
A share index1952.98
0.84%2024.90
3.68%2086.68
3.05%2132.91
2.22%1998.49
-6.30%
B share index98.96
1.32%103.22
4.30%106.45
3.13%109.48
2.85%101.12
-7.64%
Treasury Bond index119.63
0.20%119.74
0.09%119.79
0.04%119.75
-0.04%119.75
0.00%
Composite index1859.11
0.84%1927.61
3.68%1986.44
3.05%2030.48
2.22%1902.43
-6.31%
Trading VolumeRMB42.270bil
75.259mil shsRMB80.396bil
137.424mil shsRMB90.231bil
147.963mil shsRMB92.397bil
153.065mil shsRMB103.718bil
173.129mil shs

 
Shenzhen12th November13th November14th November17th November18th November
A share index6514.25
0.28%6777.69
4.04%7093.33
4.66%7223.92
1.84%6702.36
-7.22%
B share index1892.47
0.57%1916.11
1.25%1939.00
1.19%1945.17
0.32%1813.43
-6.77%
Component index6116.67
0.28%6364.03
4.04%6660.41
4.66%6783.03
1.84%6293.30
-7.22%
Trading VolumeRMB19.697bil
36.853mil shsRMB35.217bil
63.722mil shsRMB40.557bil
72.980mil shsRMB42.074bil
72.612mil shsRMB43.930bil
77.131mil shs

 
Profile of Today’s Market:
China securities market on Tuesday plunged. SSE Index declined over 6% and SZSE Index declined over 7%. Influenced by negative information such as Japanese economic recession, international oil price continued declining on Nov. 17. PBOC announces one-year notes of 5 billion Yuan with referred yield of 2.2495%, which is 96 bps lower than last time. There were more than 500 stocks in SSE and SZSE to decline over 9%. The market had large scale of chip-making short. The revengeful rebounding performance in low-price stocks paused today. The surrounding markets today declined. Non-ferrous sector plunged today, so did real estate stocks. Banking stocks became the main heavy-weighted stocks to promote the market to decline. Securities stocks plunged today.
 
Key Drivers:
The non-ferrous metal sector tumbled. The falling of London market on Monday brought pressure to base metals but the rebound of Dow in the morning session has eased the decline. The weak economy outlook continued to drive down dollars which increased inventory and caused the short term price to slip. The LME copper reserve rose 1,800 tons on Monday to 275,900 tons which was the highest since Feb 2004. Macquarie Bank has also downgraded 43% copper price estimation in the next year. The three month aluminum futures price lost to three-year-low $1,874 and it may further slip due to the continual rising of LME aluminum reserve.
 
Real estate stocks tumbled a lot. China Vanke dropped to daily limit. Shanghai Greenbelt Group and Poly Real Estate Group benefited from affordable housing project through participating directly or constructing commercial residential building in affordable housing areas. Although the affordable housing is micro-profit project, the experienced developer can also obtain profit.
 
Today, banking stocks are the main heavy-weighted shares dragging the market index down. China Merchants Bank closes at lower limit. The PBOC announced “The Implementation Report of Monetary Policy in 08Q3” yesterday. The report implied that the monetary policy should prevent deflation in short-term and inflation in long-term. The PBOC would continue to carry out properly loose monetary policy, secure the sufficient supply of banking system liquidity, maintain rational money growth & credit growth and adopt six measures to increase the financial support on economy growth. The report also disclosed that during the first three quarters, domestic GDP deflator had a rate of change of 8.5%, down by 0.1 percentage point q-o-q. The relieving inflation pressure provided space and period for structural adjustment. The related authority should promote the resource pricing mechanism reform at right time and improve economy structure optimization and the transformation of development pattern so as to lay sound foundation for keeping entire price level stable in long-term.
 
Securities company stocks dumped heavily with CITIC Securities and Haitong Securities tumbling 7% and 10% respectively. Chen Geng, CEO of Guotai Junan Securities Company, said recently the new situation of securities industry would change the operation theory and development mode deeply in the future. Among the excellent Chinese securities companies, some large international securities companies that can compete with topping international companies will appear in the five to ten years. Chen Geng said the large securities companies would not loose the brokerage, investment banking and the other traditional businesses in the future. Concerning the experiences of international market development, the proportion of traditional businesses will come down after touching the bottle-neck. On the other hand, the innovation businesses including assets management, securities lending and borrowing, etc will have larger proportion gradually.