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August 13, 2009

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Shares hit four-week low after sell-off

SHANGHAI'S key stock index lost nearly 4.7 percent yesterday to end at a four-week low below 3,200 points.

Analysts said yesterday's sell-off was closely related to the steep drop in new loans last month while investors also became cautious about the real value of shares after the barometer had soared more than 70 percent so far this year.

The benchmark Shanghai Composite Index fell 4.66 percent, or 152.01 points, to close at 3,112.72. Turnover rose to 157.5 billion yuan (US$23.16 billion) from 122.59 billion yuan on Tuesday.

The gauge has lost 10 percent since reaching a 15-month high on August 4.

"The market opened lower amid slack sentiment due to sluggish overseas markets. Plus, shrinking new yuan lending in July sparked investor concerns of mild changes in monetary policy," said Wang Fan, an analyst from Donghai Securities Co.

New loans dived 77 percent to 356 billion yuan in July, worse than estimates of 500 billion yuan by JPMorgan and Bloomberg. The China Banking Regulatory Commission has reiterated the need for risk controls recently while the securities watchdog has slowed down the approval of new funds.

Analysts said institutional investors have started to withdraw capital, leading retail investors to follow in a panic. Losing shares outnumbered gainers 825 to 47 yesterday.

"Private equity has been pulling out of the market while fund companies have their investments frozen after they invested nearly 90 percent of their capital, which could lead to a shortage of funds to shore up the market," Wang said.

Shanghai's key stock index has skyrocketed 71 percent this year - the best-performing major market in the world - as a result of huge government stimulus incentives, record bank loans and widespread optimism of an economic recovery.

Shandong Shenguang Securities said share prices had outperformed earnings prospects. "There are now more concerns about the future and the plunge may signal that the local index is likely to continue falling in the short term," Shenguang Securities Co wrote in a note.


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