More volatility in store as Shanghai Composite rises above 5,000 mark

Source:Global Times Published: 2015-6-7 18:28:02

Mainland stock markets are expected to face more consolidation in the coming week after the Shanghai benchmark closed last week above the key psychological barrier of 5,000 points, analysts said.

The Shanghai Composite Index jumped 1.54 percent or 76.00 points to close at 5,023.10 points Friday, finishing the week up 8.92 percent during the first trading week in June.

The Shenzhen Component Index rose 0.85 percent or 148.04 points to close at 17,649.09 points, up 9.62 percent week-on-week.

The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen gained 0.95 percent or 49.13 points to end at 5,230.55 points, an increase of 8.05 percent from the previous week.

Total turnover on the two bourses Friday was 2.30 trillion yuan ($370.76 billion), up from Thursday's 2.03 trillion yuan.

Following Thursday's volatile V-shaped turnaround, mainland stocks had another roller-coaster day Friday. Main indexes in both Shanghai and Shenzhen surged in the morning before falling into the negative territory by midday. In the afternoon session, the indexes both bounced back, ending the day at seven-year highs.

But ChiNext, the country's NASDAQ-style board for high-tech and emerging start-ups, lost ground Friday. The index, bellwether for the recent bull run, slipped 1.46 percent or 57.64 points to 3,885.83 points. Still, it gained 9.68 percent for the week.

The bumpy ride in the A-share markets showed the increasing caution of investors, who appeared to be concerned about a possible deleveraging trend amid brokerages.

Inflows of borrowed funds are a major driver behind the run-up in the mainland stock markets over the past few months.

On Wednesday, Industrial Securities suspended lending to clients for shares of certain stocks; on Thursday, small brokerage Golden Sun Securities suspended margin financing for ChiNext shares in an effort to control risks; on Friday, major Chinese brokerage CITIC Securities moved to tighten margin trading rules for the second time in less than a month.

Worries over more mega IPOs also seemed to have weakened investor confidence. In the wake of the mega IPO of nuclear giant China National Nuclear Power Co Ltd, which raised 13.19 billion yuan of funds last week, China's securities regulator Wednesday approved another mega IPO for Guotai Junan Securities Co, China's third-largest brokerage by profit, which is estimated to raise 30 billion yuan.

Analysts generally believe that markets need to consolidate after the Shanghai benchmark climbed above 5,000 points.

"Skepticism has emerged over whether ChiNext could remain the bellwether in a bull market … and blue-chip companies appear to have become another focus of attention," Gui Haoming, director of the wealth management research department at Shenwan Hongyuan Securities, was quoted as saying in a post published Saturday on financial news website 1caixin.com.cn.

Investors may need to cut their positions in ChiNext and increase positions in blue-chips at the current level, which could lead to market fluctuations in the short term, Tianxin Investment said in a research note Friday.

"[Overall,] given the momentum of growth stocks and blue-chips, plus the high trading volume, the main indexes are very likely to hit new highs in the near future," Gui said.

Global Times
Posted in: Markets

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