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September 23, 2009

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Index drops as concern grows over share glut

SHANGHAI'S key stock index fell more than 2 percent to a two-week low yesterday amid concerns that the looming launch of China's Nasdaq-style market and stepped-up initial offerings on the main boards will create a glut of shares.

The benchmark Shanghai Composite Index dropped 2.34 percent to 2,897.55 points. Turnover shrank to 137.8 billion yuan (US$20.3 billion) from 145.8 billion yuan. Losers outnumbered gainers 748 to 114, with 11 stocks unchanged.

Steel producers led the decline, with the price of steel falling for the sixth consecutive week on high inventories. Baoshan Iron & Steel Co, the country's largest steel maker, retreated 4.2 percent to 6.61 yuan. Handan Iron & Steel Co slid 5.9 percent to 5.14 yuan. Angang Steel Co, China's second-biggest steel maker, lost 4.8 to 12.29 yuan.

The 10 start-up companies to be listed on the new Growth Enterprise Market will sell shares on Friday and may be oversubscribed.

"Share subscriptions are expected to tie up about 70 billion yuan, putting pressure on market liquidity," said Zhang Fan, an analyst at Guangdong Foretech Investment Consultants Co.

Even more pressure may come from a raft of initial public offerings of blue chips on the main boards, Zhang said.

China International Travel Service Corp, the country's biggest travel agency, starts online subscriptions today. It has set the price range for its Shanghai IPO between 10.80 yuan and 11.78 yuan, which would raise up to 2.6 billion yuan.

The offer price indicates a price-earnings ratio of between 30 and 35 times 2009 earnings and was generally in line with expectations. Other tourism-related stocks on the index trade at about 40 times estimated earnings, according to Shanghai Securities.

Analysts also blamed yesterday's weak performance on Metallurgical Corp and other sluggish blue chips.

Metallurgical Corp, the second-biggest IPO this year, slipped 8.5 percent to 6.35 yuan in its second day of trading. The engineering and construction giant sold its shares to the public at 5.43 yuan.

Oil refiners lost ground after oil futures prices tumbled below US$70 a barrel in the United States. PetroChina, the nation's biggest oil producer and the most heavily weighted share on the index, lost 2.18 percent to 12.99 yuan. Sinopec, Asia's largest refiner, decreased 3.16 percent to 11.33 yuan.


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