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September 21, 2009

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Liquidity shortage preys on market

SHANGHAI'S key stock index will likely trade within a range of 2,800 to 3,100 points this week due to a liquidity shortage, but analysts forecast a good week for high-tech and consumer-oriented shares.

The benchmark Shanghai Composite Index declined 0.91 percent to 2,962.67 points last week after a 3.19 percent drop last Friday. The Shenzhen Composite Index, which tracks the smaller domestic market, dropped 0.98 percent last week to 11,977.40 points.

"Upcoming IPOs, like Metallurgical Corp, will siphon market liquidity and push the index down," said Teng Yin, an analyst at Everbright Securities.

Metallurgical Corp of China, which provides engineering and equipment services to the mining industry, will debut on the Shanghai market today.

It raised 18.9 billion yuan (US$2.8 billion) by selling 226 million class A shares.

Meanwhile, the lockup period of 313.47 billion shares, which account for 45 percent of total new tradable shares this year, will expire next month, further pressuring liquidity.

"It's peak season for locked shares to become tradeable next month. It will influence both capital supply and investor confidence," said Teng, who expects the Shanghai index to trade under 3,100 points this week.

On the other hand, electronics, pharmaceuticals, tourism and energy shares are expected to perform well this week due to the new Nasdaq-style Growth Enterprise Market and the upcoming National Day holiday.

China has set up the Growth Enterprise Market in Shenzhen to provide start-up capital for tech firms.

The stock regulator has approved 13 firms for listing on the GEM board so far. They mainly comprise high-tech, pharmaceutical and new-energy companies.

Electronics firms jumped 8.17 percent on average last week thanks to investors' expectations of the "Internet of Things," which refers to a network of objects connected wirelessly.

Chip makers, electronic components and telecommunications firms are expected to benefit from the "Internet of Things."

The index will gain support around 2,850 points on the strength of small- and medium-sized firms, said Huatai Securities.


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