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November 30, 2009

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Index likely to prolong losses

THE Shanghai stock market is likely to extend its losses this week on concerns of tighter liquidity and a possible financial crisis due to the problems involving Dubai World, analysts said.

The Shanghai Composite Index posted a weekly loss of 6.4 percent to end at 3,096.26 last Friday, the biggest weekly loss in three months, after Dubai World's debt problem weighed on global stock markets. Plans by domestic banks to raise large amount of funds to lift their capital adequacy ratios also caused the index's decline, analysts said.

Dubai World said last week it would ask for a delay of at least six months to pay around US$60 billion owed to creditors, which led global stocks to tumble on fears its trouble will stymie economic recovery worldwide.

"The news significantly hurt investor confidence because it raised worries it could result in a new economic crisis," China Merchants Securities Co wrote. "The fallout of the news is still uncertain and we have to wait till this week to see how deeply it will affect the (local) stock market."

Yan Li, a Southwest Securities Co analyst, said there are "signs of market liquidity tightening," citing accelerated bill repurchases and a slowdown in new bank loans.


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