By Jin Jing (China Daily)
Updated: 2008-04-10 07:26

SHANGHAI: The mainland stock market took a dive yesterday after a four-day run-up, as jittery investors hurried to take profits ahead of the further tightening of government monetary policy to combat inflation.

The benchmark Shanghai Composite Index plunged nearly 200 points, or 5.5 percent, the biggest one-day decline in three months, to close at 3413.91. The Shenzhen Component Index slid 3.78 percent to close at 13078.81.

The turnover on two bourses amounted to 120.6 billion yuan ($17.2 billion), down 11.1 percent from Tuesday. The latest stock price slide wiped out 1.2 trillion yuan to 22.01 trillion yuan of total market capitalization.

"Investors' sentiment has remained depressed," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.

"They have largely adopted a short-term view and moved in droves to take profits at any opportunity," he said.

Inflation has continued to weigh heavily on the minds of investors, analysts agreed. Many investors were worried that the expected increase in the consumer price index (CPI) for March, due for announcement next Friday by the National Bureau of Statistics, could trigger another round of money-tightening measures.

"Most analysts predicted the CPI increase to be around 8.2 percent in March. The possibility of the CPI rising more than 8 percent in each of two consecutive months will likely prompt the government to take action," Wu said.

The weak performance of the stock markets around the world seemed to have further dampened domestic investors' sentiment. In Hong Kong, the Hang Seng Index dropped 1.35 percent to close at 23984.57. In Japan, the Nikkei 225 Average Index fell 1.05 percent.

The turnover of the Xinhua China A50 ETF (Exchange Traded Fund) traded in Hong Kong shrank sharply by about 43 percent to HK$217 million ($27.9 million) yesterday from a high of HK$385 million on Monday, according to statistics from Lipper, which tracks the performance of funds.

"The turnover of Xinhua A50 ETF swelled in April from March as international bargain investors began to pay attention to the mainland equity market, which had fallen sharply in March. But yesterday's fall also triggered international investors to be more cautious in investment," said Zhou Liang, head of research of Lipper China.

Large-caps dragged down the index yesterday. China Life plunged 7.34 percent to close at 30.16 yuan. Sinopec tumbled 7.29 percent to close at 11.82 yuan, and Ping An Insurance plummeted 7.05 percent.

Analysts said that as the market still holds lots of uncertainties, investors should be more cautious in making investment decisions.

"The market volatility is expected to continue because of nagging economic uncertainties," Zhou said.

"The economic data for March will be an important criterion for us to evaluate the mainland macro economy, and make further investment decisions," Fortune SGAM Fund Management Co Ltd said in its report yesterday.

(China Daily 04/10/2008 page7)