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August 17, 2009

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Home » Business » Finance

Key barometer likely to test 3,000 level

SHANGHAI shares will probably continue to decline, with the key index likely to test the 3,000-point level this week, following the biggest weekly loss since February due to investor concern over a liquidity shortage.

The benchmark Shanghai Composite Index plunged 6.6 percent last week to 3,046.97, following a 4.4 percent fall in the previous week.

"The best time (for stocks yielding strong returns) has passed, and the market will try to find the bottom after two weeks of wild fluctuations," said Teng Yin, an analyst at Everbright Securities.

The Shanghai barometer will fluctuate between 2,900 and 3,100 this week, analysts said.

The pending launch of the Growth-Enterprise Market, the resumption of initial public offerings and a possible tightening of bank loans may divert capital out of the main bourse, they pointed out.

The China Securities Regulatory Commission, the regulator, last week said it had established a committee to scrutinize approvals for potential start-ups to list on the GEM.

New yuan lending hit a nine-month low in China last month as banks took a step back and slowed their credit growth amid rising concerns of asset bubbles forming, central bank figures showed yesterday.

Banks in China lent 356 billion yuan (US$52 billion) of yuan-denominated loans last month, a sharp tumble from the 1.53 trillion yuan in June, the People's Bank of China, the central bank, said recently.

It was widely recognized that the previous record high credit unleashed a flood of liquidity which fueled China's stock and real estate sectors.

As a result, the benchmark index has surged about 70 percent so far this year while other major global stock markets struggled.

"The liquidity will not be a problem because government policies to stimulate the economy have not changed," said Gao Shanwen, an analyst of Essence Securities.

But he added the supply of capital in the second half would not be as high as in the first six months.


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