Pressure mounts for an increase in liquidity
By Leo Zhang |
July 16, 2010, Friday
|
Print Edition
Print Edition
CHINA'S slower economic growth and massive corporate fund-raising proposals are expected to add pressure on the central government to inject more liquidity into the slumping stock market, analysts said yesterday.
However, many market observers believed that authorities are unlikely to take direct steps such as freezing stock sales and cutting the stamp duty to rescue the market unless a deep correction occurs.
The benchmark Shanghai Composite Index has fallen by more than a quarter this year as the central government started to tighten credit amid growing inflationary pressure and the red-hot property market.
The mainland equity market was also hit by a series of stock-sale plans announced by large state-owned banks and other industrial conglomerates, which fanned jitters about a liquidity drain.
"Slower economic expansion and reduced inflationary pressure could provide more room for the government to adjust its policies," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "More capital is needed to support stock sales and shore up blue chips in the second half."
Economic growth posted a 10.3 percent gain in the second quarter, compared with an increase of 11.9 percent in the first three months. Growth in consumer prices slowed to 2.9 percent in June from 3.1 percent in May.
Chinese companies have raised about 490 billion yuan (US$72 billion) from issuing yuan-denominated shares so far this year. Analysts expect the total amount to be drained as fund-raising could reach 800 billion yuan for the year.
The People's Bank of China has injected a hefty 930 billion yuan into money markets over the past seven weeks to help ease the cash crunch, caused mainly by the Agricultural Bank of China's massive initial public offering.
"Regulators are set to create a loose liquidity condition for the market to absorb more stock sales," said Liu Yu, an Orient Securities Co analyst. "They may slow approving fund-raising plans when the market goes weak, but it's unlikely they would completely stop issuing equity."
China has pledged to support companies to go publicly to raise funds. A suspension of equity sales could harm domestic enterprises, especially start-up firms, which are eager for capital to invest in innovation and expansion, analysts said.
Some market watchers also said that abolishing the stamp duty for stock sellers may offer a short-term boost, but it won't lead to a considerable gain as economic fundamentals still matter most.
To bolster a sagging stock market, China in April 2008 exempted share purchases from the stamp tax, but still levies a duty of 0.1 percent on stock sale transactions.
"The biggest challenge in the stock market is lack of investors' confidence," said Zhang Weiming, a trader with Guosen Securities Co. "A stamp duty cut is not enough to offer a long-term driver. We need good economic fundamentals and ample liquidity."
However, many market observers believed that authorities are unlikely to take direct steps such as freezing stock sales and cutting the stamp duty to rescue the market unless a deep correction occurs.
The benchmark Shanghai Composite Index has fallen by more than a quarter this year as the central government started to tighten credit amid growing inflationary pressure and the red-hot property market.
The mainland equity market was also hit by a series of stock-sale plans announced by large state-owned banks and other industrial conglomerates, which fanned jitters about a liquidity drain.
"Slower economic expansion and reduced inflationary pressure could provide more room for the government to adjust its policies," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "More capital is needed to support stock sales and shore up blue chips in the second half."
Economic growth posted a 10.3 percent gain in the second quarter, compared with an increase of 11.9 percent in the first three months. Growth in consumer prices slowed to 2.9 percent in June from 3.1 percent in May.
Chinese companies have raised about 490 billion yuan (US$72 billion) from issuing yuan-denominated shares so far this year. Analysts expect the total amount to be drained as fund-raising could reach 800 billion yuan for the year.
The People's Bank of China has injected a hefty 930 billion yuan into money markets over the past seven weeks to help ease the cash crunch, caused mainly by the Agricultural Bank of China's massive initial public offering.
"Regulators are set to create a loose liquidity condition for the market to absorb more stock sales," said Liu Yu, an Orient Securities Co analyst. "They may slow approving fund-raising plans when the market goes weak, but it's unlikely they would completely stop issuing equity."
China has pledged to support companies to go publicly to raise funds. A suspension of equity sales could harm domestic enterprises, especially start-up firms, which are eager for capital to invest in innovation and expansion, analysts said.
Some market watchers also said that abolishing the stamp duty for stock sellers may offer a short-term boost, but it won't lead to a considerable gain as economic fundamentals still matter most.
To bolster a sagging stock market, China in April 2008 exempted share purchases from the stamp tax, but still levies a duty of 0.1 percent on stock sale transactions.
"The biggest challenge in the stock market is lack of investors' confidence," said Zhang Weiming, a trader with Guosen Securities Co. "A stamp duty cut is not enough to offer a long-term driver. We need good economic fundamentals and ample liquidity."
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