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Credit contraction jitters trigger decline in equities

By Li Xiang (China Daily)
Updated: 2010-01-21 09:26

Equities declined yesterday amid concerns over tighter lending controls and the stronger-than-expected inflationary pressure in the market.

The benchmark Shanghai Composite Index fell 2.93 percent to 3,151.85 points, while the Shenzhen Component Index fell 3.25 percent to 12,916.25 points.

Sentiment was dampened by rumors that the People's Bank of China, the country's central bank, may raise benchmark interest rates by 0.27 percentage points as early as Friday. There were also reports that the authorities would re-impose stamp tax on stock purchases.

Analysts, however, said the decline was within expectations as it clearly signals the government's intention to control credit growth and stifle money supply to curb inflation.

"The government's decision to cut lending growth and curb money supply indicates the government's seriousness in tackling inflation," said Li Jianfeng, an analyst at Shanghai Securities.

The central bank last week raised the reserve requirements for commercial banks and hiked bill yields for one-year paper by eight basis points on Tuesday.

Technology and communication companies were the biggest losers on bourses yesterday. Beijing Zhongchuang Telecom Test Co Ltd shares slid 9.75 percent to 19.07 yuan, while Datang Telecom Technology Co Ltd fell 9.4 percent to 18.61 yuan.

Sinopec, China's largest oil refiner, dropped 4.7 percent to 12.45 yuan, while China Shenhua Energy Ltd, the country's biggest coal producer, slumped 4.1 percent to 31.62 yuan.

Analysts said the market is likely to remain weak and may see more downward movements coupled with bouts of volatility in the next few days.