SHANGHAI – CHINA’S main stock index jumped more than 8 per cent yesterday in its biggest daily rise since June 2005, after the authorities intervened to halt a three-week slide in share prices.
Regulators’ approval of two new stock funds after a freeze of several months, official criticism of Ping An Insurance’s plan for a huge stock offer and the postponement of China Railway Construction’s US$4 billion (S$5.7 billion) initial public offering restored a good measure of battered investor confidence.
The Shanghai Composite Index opened more than 2 per cent higher and closed the day up 8.13 per cent at 4,672.17 points, within a whisker of its intra-day high of 4,672.214.
Gainers overwhelmed losers 865 to two, while over 300 stocks soared past their 10 per cent daily limits.
The index plunged 16.7 per cent last month amid panic-selling and remained 24 per cent below last October’s record high.
Most of the official steps were aimed at resolving one of the market’s biggest worries – the possibility of a big oversupply of fresh equity relative to demand.
In another gesture of official support, Mr Li Rongrong, head of the state asset management agency, was quoted by official media as saying China’s fierce winter weather would not affect the earnings of listed state firms controlled by the central government, so stock investors should not worry. The weather was improving and transport bottlenecks easing, local media said.
Banks helped lead the index up, continuing a rally that began on Friday amid signs China might ease a tight monetary policy to offset the impact of a slowing United States economy and ease the funding squeeze suffered by small banks and firms in recent weeks.
China’s central bank also introduced measures to enable commercial lenders to do more for developers of affordable housing.
China has long tried to boost incentives for firms to build cheaper housing, as the country’s booming real estate market has generated riches for some but put the price of home ownership out of reach for many.
Banks can now extend loans for affordable housing if the developers raise 30 per cent of the total capital. That compares with a 35 percent requirement for developers of more expensive homes.
Banks may lend to developers of affordable housing at interest rates as low as 90 per cent of the benchmark lending rate, which stands at 7.47 per cent a year, and for as long as five years, up from three years before, it said.
The central bank and the country’s banking regulator also expanded the category of those allowed to extend such loans to all financial institutions, such as joint-stock banks, from just state-owned banks.
The central bank signalled a relaxation of its credit clampdown last Thursday when it called on commercial banks to speed up loans to areas of the country battered by harsh winter weather.
A commentary published yesterday by the People’s Daily, a mouthpiece of the Communist Party, also criticised Ping An, whose plan for an equity sale as large as US$22 billion terrified investors last month because of fears the market could not absorb the share supply.
Fund managers said this almost guaranteed Ping An would not be able to proceed with the plan and might sharply cut any revised fund-raising proposal.
Metals-related shares, meanwhile, surged after Aluminum Corp of China teamed up with US aluminium producer Alcoa to buy a US$14 billion stake in Rio Tinto, which might block BHP Billiton’s effort to win Rio.
Source: REUTERS (The Straits Times 5 Feb 08)