Retreat in stock index ‘natural’

By Chu Daye Source:Global Times Published: 2017/8/13 21:43:39

Investors take profits after previous surge


An investor walks past a board showing stock prices at a brokerage in Hangzhou, East China's Zhejiang Province on Friday. Photo: CFP

Experts said that the 1.63 percent drop in the mainland benchmark stock index last Friday, the most significant drop this year, is a "natural" adjustment after the extended gains seen in China's A-share market in recent weeks.

The benchmark Shanghai Composite Index dropped 1.63 percent Friday to close at 3,208.54 points, while the Shenzhen Component Index closed 1.81 percent lower at 10,291.35 points. Nearly 2,500 stocks out of the more than 3,000 listed firms on domestic bourses saw their share prices drop.

The fall came after a slide in the world's major markets Thursday, including a 1.45 percent drop in the S&P 500 index, its biggest one-day drop in almost three months. The NASDAQ Composite Index also fell by 2.13 percent.

Markets in Europe, Japan and South Korea also fell Friday. Hong Kong's Hang Seng Index dropped 2.04 percent on the day.

External reasons

Li Daxiao, chief economist at Shenzhen-based Yingda Securities, said the recent bellicose rhetoric between the US and North Korea can be seen as an external geopolitical reason that prompted investors to take profits, but the underlying reason is the hefty growth seen in the previous weeks.

"The fall in the US stock markets might have prompted investors in other markets to conduct the same profit-taking measures," Li told the Global Times on Sunday.

Before last week, the Shanghai Composite Index had inched up continually for seven consecutive weeks, rising from 3,138 points on June 23 to a high of 3,305 points on August 2.

Investors began to sell their shares to lock in profits in the US markets after a long period of significant growth, and there is always a high likelihood of global investors following suit, Li said.

Internal reasons

Xi Junyang, a finance professor at the Shanghai University of Finance and Economics, said the drop in A shares is a reflection of mainland stock markets' two-way fluctuations these days.

"It is the inherent nature of this market. It cannot be a single-way rising market, which is a bull market. We haven't seen a large flow of outside capital flowing into the mainland stock market as we saw in previous bull markets. So what we see is a repeated cycle of boom and bust on a limited scale. For over a year, the level of 3,300 points proved to be a difficult high ground to surmount. Lacking ammunition and facing an uphill battle, the index is poised to retreat at any sign of trouble," Xi told the Global Times on Sunday.

The fall of the Hong Kong stock index also influenced mainland stock markets more than the US market, as many big Chinese companies are listed in Hong Kong, and when their share prices fall, many similar stocks listed in the A-share market face pressure to drop as well," Xi said.

"The correction happened after the Shanghai Composite Index hit 3,305 points, so a fall from that point is a natural one, and it corrected the value of many sectors that had seen rapid but unsupported growth in recent weeks," Li said. 

Zhang Ning, a research fellow at the Chinese Academy of Social Sciences, said shares in companies in industries such as nonferrous metal, iron, steel and coal have been eye-catching and they gave momentum for the correction.

"These stocks have risen tremendously in value this year," Zhang told the Global Times on Sunday.

Overall, a full-scale domestic economic recovery is still not deeply rooted, and that has restrained investors' confidence, according to Zhang. 

Some stocks have surged too rapidly, and their price falls are related to fluctuations in futures markets, according to Li.

Li forecast the A-share market would see a more stable period this week. "If you look at how the US markets performed on Friday, you will see a stabilizing trend was building in the market near the close of trading," Li said.



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