Record-high CPI triggers 4.5% plunge of China stocks

Record-high CPI triggers 4.5% plunge of China stocks


Updated: 2007-09-11
The announcement of the highest consumer price index (CPI) figure in 11 years and the issuance of another batch of special treasury bonds totaling 200 billion yuan finally triggered a wave of panic selling today resulting in the largest single-day drop in three months.


Other factors for the slump also included a series of previous "discouraging" factors that had failed to affect the market heavily through yesterday.


The Shanghai Composite Index, after hitting a temporary high in the morning, plummeted 241.32 points or 4.51 percent by close, the deepest plunge in the post-May 30 period after June 4 when the benchmark index fell 330 points in a single day.


Total turnover of the stocks in the major indices was 259.2 billion yuan, higher than yesterday's figure.

The benchmark Shanghai index opened higher at 5,362.94 and seemed resistant to the CPI release at first, by hitting the highest 5,395.04 and fluctuating in short ranges without forming a clear trend in the morning. In the afternoon, however, it began sliding and lost another 130 points in less than 30 minutes just before the close to hit the lowest at 5,093.92. A slight rebound near close could not save the market from a losing day.


Of the A shares listed in Shanghai, only 48 went up, 62 ended flat but as many as 732 closed down. The Industrial and Commercial Bank of China, with largest trading volume, fell 5.6 percent to further drag down the index. China COSCO Holdings, with the largest transaction value, rose an astounding 10 percent to 38.46 yuan, leading today's few gainers.

The Shenzhen Component Index, tracking the smaller Shenzhen Stock Exchange, opened higher at 17,926.60 but closed 789.09 points or 4.4 percent down to 17129.39. Mapping out a similar trend to its Shanghai counterpart, the index went through the day within a range of between 17,088.67 and 18,064.15.


Of the A shares, 37 climbed up, 536 fell and 66 remained unchanged. Large traders TCL and China Vanke were both down about 5 percent.

Analysts said the August CPI statistics release triggered fears of further tightening measures, but it was the accumulated pressures rather than a single factor that had triggered today's deep plunge.


CPI, a barometer of inflation, rose 6.5 percent year-on-year in August after a 5.6 percent increase the previous month, the National Bureau of Statistics said Tuesday in a statement. The growth beats the six-percent expectations most economists had voiced, and is well above the official target of three percent for the whole year.


Meanwhile, the producer product index, a measurement of overall inflation, increased 2.6 percent in August, 0.2 percentage points higher than in July, the bureau said on Monday.


China is to issue 200 billion yuan (US$26.7 billion) of special treasury bonds as the second batch of a planned 1.55 trillion yuan basket to finance the country's new foreign exchange investment firm.


The bonds would be sold to the public, with outstanding terms of more than 10 years, the Ministry of Finance announced on Monday. The first 100 billion yuan bonds will be issued later this month in three batches, while sale of the second half is scheduled for the fourth quarter.


The announcement came two weeks after the ministry issued 600 billion yuan of such bonds targeting the country's commercial banks with an annual interest rate of 4.3 percent. "The bond sale will help ease liquidity, prevent the economy from overheating and strengthen macro-control policy," the ministry said.


"Theoretically, a 200-billion-yuan bond sale to the public could have the same effect on excess liquidity as a 0.5-percentage-point hike in bank reserve requirements," said Wang Guogang, a finance expert at the Chinese Academy of Social Sciences. Issuing in batches and to different buyers would ensure the stability of the financial market and reduce the bond investment risks, Wang said.


The market itself will see a new round of listing waves in the coming weeks. Bank of Beijing said yesterday it will raise as much as 15 billion yuan (US$1.99 billion) in a Shanghai initial public offering (IPO). The bank will sell 1.2 billion shares at 11.5 yuan to 12.5 yuan each, it said in a statement to the Shanghai Stock Exchange.


China Construction Bank (CCB) released A-share issuance prospects and an initial price inquiry announcement today. The China Securities Regulatory Commission (CSRC) last Friday approved the yuan-denominated A-share listing plan of CCB.


CCB will finish its price enquiry on September 11 to 13, launch offline subscription on 14 to 17 and online subscription on September 17, making the second-largest bank one of the "fastest" in issuing shares of the returning red chips.


China Oilfield Service Limited (COSL), currently listed in Hong Kong, was approved by CSRC for its A-share issuance yesterday. China's largest marine oil service provider will issue no more than 820 million shares in the domestic market, accounting for 17 percent of its enlarged capital after the issue.