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August 3, 2009

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Bank loans worry set to limit index rise

MORE fluctuations are in store for the Chinese mainland's stock market which is still likely to rise but the climb is seen limited due to expectations that bank loans will be more tightly restrained in the second half, analysts said.

The benchmark Shanghai Composite Index gained 1.2 percent last week to end at 3,412.062 points last Friday. The weekly gain sent the barometer to its biggest monthly increase since August 2007, with the rise triggered by the central government's stimulus measures, a surge in bank loans and optimism over China's economic recovery.

However, analysts were cautious about the market's future trend.

Xinhua news agency has cited an unnamed official as saying the central bank would fine-tune its moderately loose monetary policy and this has sparked speculation that yuan lending may fall significantly.

"The market also faces mounting pressure from profit taking after shares have climbed rapidly recently," said Yi Xiaobin, an analyst at Galaxy Securities Co. "The index may fluctuate widely on pressure for a technical correction."

With the central government's reiterating that it will continue with its loose monetary policy, the key index will probably keep its upward momentum but a sharp rise is not likely, Nanjing Securities Co wrote.

Xu Haiyang, an analyst at Rising Securities Co, forecast the gauge at between 3,350 and 3,850 points. He suggested investors focus on financial and steel firms, which are expected to report earnings growth.


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