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Shanghai Index may 'drop to 2,500': brokerage

(Xinhua)
Updated: 2010-03-15 14:33

China's benchmark stock index may fall a further 17 percent to 2,500 in the first half as the government steps up measures to cool growth, according to Guotai Junan Securities Co, the nation's second-largest brokerage.

The Shanghai Composite Index, which has declined 9.1 percent this year, may extend losses as interest rates rise and the government increases reserves banks need to set aside for loans after consumer prices and fixed-asset investment climbed more than estimated, said Zhang Kun, a strategist at the Shanghai-based brokerage, in a telephone interview today.

"There's more and more pressure on the government to do more to rein in growth," said Zhang. "The market may bottom out in July or August and then start to rebound when the tightening is expected to ease."

The Shanghai Composite has dropped this year after the government twice increased lenders' reserve requirements to slow loan growth and contain inflation, making it the second-worst performer among 93 global benchmark indexes tracked by Bloomberg. It rallied 80 percent last year as the government unveiled a 4 trillion yuan ($586 billion) stimulus package, encouraged record new loans and subsidized consumer spending.

Economists from Goldman Sachs Group Inc, Deutsche Bank AG and JPMorgan Chase & Co said the risks of overheating are building in the world's third-largest economy and the central bank should raise interest rates as early as this month. Morgan Stanley said today it expects "multiple" increases in bank- reserve ratio requirements with the next one "imminent."

Inflation accelerated to 2.7 percent last month and urban fixed-asset investment rose 26.6 percent in January and February, the statistic bureau said last week. That compares with the median estimates of 2.5 percent and 25.6 percent in a Bloomberg News survey, respectively.

Guotai is the second-biggest brokerage in terms of revenue, according to the Securities Association of China.