By Li Zengxin (chinadaily.com.cn)
Updated: 2007-10-18 16:05

Shanghai Composite Index
Source: sina.com.cn

Chinese stocks experienced turbulent swings today, as wide-spread speculation on possible reforms making A and H shares convertible triggered panic selling in the market. Investors were worried about diminishing price gaps between the mainland and Hong Kong stock markets, said analysts.

The benchmark Shanghai Composite Index plunged 211 points or 3.5 percent to 5,825.28 points by the close, the largest single-day drop in a month. The Shenzhen Component Index closed at 18,681.35, down 606.95 points or 3.15 percent. Total turnover of the stocks in the two indices was 194.2 billion yuan, the lowest this month.

Vice chairman Tu Guangshao of the China Securities Regulatory Commission (CSRC) said yesterday that the securities regulator is currently considering making a company's A and H shares exchangeable. CSRC may announce the research results soon, Tu said.

It is widely believed that such a decision constitutes good news for the Hong Kong stock exchange but is discouraging for the mainland bourses.

Shenzhen Component Index
Source: sina.com.cn

Of the A shares listed in the two exchanges, as many as 1,047 fell down, while only 311 went up and 135 closed flat. Large traders China Unicom, China Shenhua Energy, the Industrial and Commercial Bank of China, and China Vanke all lost over 3 percent in share prices, dragging the index down sharply.

Industrial insiders said China's other ministries are also keeping a close eye on the market reaction to the news, especially the State Administration of Foreign Exchange (SAFE). If the proposal is passed, it will be an important move in further opening up the country's capital account.

If the two are convertible, the current price gaps, with A shares at surplus and H shares discounted, may become narrower, said analysts with Credit Suisse. Such a convergence will affect both markets dramatically.

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