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November 25, 2009

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Home » Business » Finance

Stocks in biggest daily fall for 3 months

SHANGHAI stocks yesterday suffered their biggest daily fall in three months, led by a plunge in United States dollar-denominated B shares on jitters that a recent rally may not be sustained amid uncertainties about China's economic recovery.

The unexpected stumble in B shares indicated that some big investors chasing foreign-currency shares recently were withdrawing after market rumors that the tiny market might be abolished failed to materialize, analysts said.

The Shanghai Composite Index lost 3.45 percent to close at 3,223.53, marking the steepest single-day loss since August 31. Turnover jumped to 290.8 billion yuan (US$42.6 billion) from Monday's 203.7 billion yuan.

"The economy is improving but you can't say recovery has been secured," said Liu Yu, an Orient Securities Co trader. "Some people are worried if government stimulus goes weaker next year, corporate earnings will worsen."

China's economy staged a strong comeback in the third quarter by rising 8.9 percent, compared with a 7.1-percent growth in the first half, as investment and consumption held up momentum under a loose monetary policy.

However, economists warned that the country's macro policy could return to tightening next year as inflationary pressure grows and the need to rein in excessive investment and curb overcapacity is mounting.

Liu Manping, an expert at the price monitoring center under China's top economic planning body, wrote in an article in Outlook Weekly that the end of the second quarter of 2010 may be the right time for the government to wind down stimulus efforts.

The local B-share index, which tracks 53 US dollar-denominated stocks traded in the city, lost 7.34 percent to 242.03, the largest drop in 13 months. The barometer had gained 26 percent this month before yesterday, compared with an 11-percent rise on the Shanghai Composite Index during the same period.

Although turnover of B shares was less than 1 percent of that in the A-share board, the fall had a psychological impact on investors in the main market, suggesting a profit-taking mood has kicked in, analysts said.

B shares jumped this month on market talk that China might merge the foreign-currency shares with a proposed international board, which will likely be established in Shanghai next year to host overseas companies.

The average valuation of B shares has long been trailing that of A shares and would be boosted if the foreign-currency shares were merged into the main board.

"Institutional investors accounted for most of trading as they pocketed recent gains spurred by rumors of the merger," said Chen Jinli, a Guosen Securities Co trader. "We noted many foreign institutions were selling."


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