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Warnings about local market

CHINA'S A-share market may plummet in the second half this year due to the resumption of sales of new shares and the underperformance of corporate earnings in the first half, said major brokerages, including Guotai Jun'an and Shenyin and Wanguo.

This may be accompanied by tight liquidity as more companies are expected to issue new shares, which will greatly raise the amount of shares being traded on the market in the medium term, said Shenyin and Wanguo Securities Co in a report yesterday.

"But the inflow of overseas capital will ease the liquidity pressure in the domestic market to some extent," the securities house said.

Guilin Sanjin Pharmaceutical Co and Zhejiang Wanma Cable Co will be the first two companies to launch initial public offerings after a nine-month suspension of IPOs by the China Securities Regulatory Commission.

More than 30 companies, including China State Construction Engineering Co, Everbright Securities Co and China Merchants Securities Co, have been waiting to list on the main board after winning regulatory approval. They are expected to offer more than 70 billion yuan (US$10.25 billion) worth of new shares between them.

The brokerage suggested investors focus on real estate, banking and the insurance sector before overseas capital flows in. It estimated that the Shanghai Composite Index would fluctuate between 2,300 and 3,150 points.

Guotai Jun'an Securities estimated that first-half corporate earnings for listed companies would be down more than 10 percent on a yearly basis.

"But we are still confident that the stock market will rise in the second half, though with narrower growth than in the first half thanks to a loose policy environment and better second-half corporate earnings," it said.

It told investors to focus on financial, real estate and construction materials firms and machinery equipment companies.

Haitong Securities Co was more pessimistic about the trend in the second half and expected the market to undergo a correction.

Haitong attributed possible falls to the slowdown of economic growth and falling liquidity caused by the expiry of lock-up periods and the resumption of IPOs.


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