Stocks plunge on re-financing fears
Updated: 2008-02-25 17:11
China's stock market took another big hit on Monday, as jittery investors dumped shares, amid fears over a slew of huge re-financing plans and a possible round of further monetary tightening.
Analysts blamed the recent slump on plans for secondary share sales by a number of listed firms, as the re-financing schemes added to the liquidity concerns.
Ping An Insurance announced in late January its intention to raise up to 150 billion yuan, prompting other firms to follow suit, including Shanghai Pudong Development Bank.
So far this year, some 43 firms have set forth re-financing plans, aiming to raise 260 billion yuan, compared with the 394 billion for 190 firms in the whole of 2007.
Combined with the end of the lock-up period for 400 billion yuan worth of shares in March, the new equity sales spooked investors whose faith has steadily dropped, as high volatility has become the norm since mid-October.
As part of a consolation to investors, China Railway Construction Corporation has decided to cut back its initial public offering in Shanghai to 2.45 billion shares from the originally planned 2.8 billion ones.
The Beijing-based company is expected to raise up to 22.25 billion yuan after setting a price range of 8.0 to 9.08 yuan per share.
However, the central bank's unwillingness to budge on its monetary tightening policy hit investors hoping for an ease in the monetary policy due to a possible global economic recession and a recent devastating snowstorm.
Inflation remains the primary risk to China's economy, and the government will stick to a tight monetary policy, central bank vice governor Yi Gang said during the weekend at a forum.
The Consumer Price Index, a barometer of inflation, jumped to an 11-year high of 7.1 percent in January from a year earlier, as the snowstorms worsened food shortages.
Since the start of 2007, the central bank has raised interest rates six times and bank reserve requirements 11 times.
The re-financing and tightening fears outweighed the release of new investment funds by the China Securities Regulatory Commission (CSRC) to add more ammunition to the institutional investors.
Approval of new funds usually gave a boost to the market. However, given the fact that the faith of the market has fallen to such a low level, this kind of measure alone is far from enough, analysts said.
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