Liquidity concerns may strike the Shanghai stock market this week after it fell to the lowest level in three weeks last Friday.
Market sentiment was hurt on speculation that more companies plan to raise money by additional stock sales and a lot of shares will become tradable after their two-year lock-up period expires, analysts said.
Shanghai Pudong Development Bank plunged almost 20 percent last week after it was said to raise as much as 46 billion yuan (US$6.4 billion) from an additional share sale.
"The news impacted on investors' confidence and sparked more corrections of the market, and the barometer may dive below 4,200 points," said Qian Qimin, an analyst with Shenyin & Wanguo Securities Co.
"The fluctuation can be controlled if regulators can step in to support the market," Qian said.
From the beginning of this year to February 20, a total of 44 listed companies planned to issue additional shares for financing, involving a total of 260 billion yuan.
Besides, 134 billion shares will become tradable in the Shanghai market this year, worth a total of 2.98 trillion yuan.
China Merchants Bank Co said 2.53 billion of yuan-denominated A shares, representing 17 percent of total outstanding shares, will become tradable on Wednesday as their two-year lockup period expires, which raised concerns that the value of existing holdings in the company will be diluted.
"In addition to the expiry of lock-up, the market is also pounded by speculation about more macro-control rules," said Orient Securities analyst Mo Guangliang.
Investors are concerned that the central bank may raise the deposit reserve ratio for banks or interest rates to fend off inflation, as the Consumer Price Index in January soared 7.1 percent from a year earlier to hit an 11-year record high.
Mo estimated the Shanghai Composite Index, which lost 2.8 percent to 4,370.29 last week, will trade between 4,050 and 4,450 this week.
(Shanghai Daily, February 25, 2008)
