Shanghai Index Slides 5.5%

Shanghai Index Slides 5.5%
Investors Question Beijing's Inaction; Where's Bottom?

By MICHELLE NG
April 10, 2008; Page C6

Chinese stocks plunged on a mix of disappointment that the government hasn't announced measures to support the market and concerns about a big increase in the supply of shares available.
The 5.5% drop in the Shanghai Composite index, its largest decline since Jan. 28, triggered a selloff in the Hong Kong market. Other Asian markets also declined Wednesday. South Korea's market was closed for parliamentary elections.
The Shanghai index closed Wednesday at 3413.91, as much of the gains racked up during a four-day winning streak were wiped out. The index has plunged 35% this year.
"Without positive signals from Beijing, investors who bargain-hunted recently don't feel safe holding stocks for long," said Everbright Securities analyst Shi Honglin.
Analysts said investors also were concerned about the possibility that shares released following lockup periods would flood the market. Morgan Stanley estimates as much as 1.6 trillion yuan ($228.48 billion) of shares held by institutional investors will be freed as lockup periods expire this year.
"It's difficult for the markets to make sustainable gains under such a shadow," said Haitong Securities analyst Zhang Qi. "If Beijing doesn't unveil measures to limit the selling of newly tradable shares, I expect the new-share-supply factor to weigh on the markets for the next two to three years."
Among the day's big decliners was Shanghai Pudong Development Bank, off 7.8%. China Petroleum & Chemical fell 7.3%, and China Eastern Airlines hit the 10% downside limit.
"I'm actually tempted to give up on citing a bottom figure" for the index, Mr. Zhang said. "After all, 5000 and 4000 have been previously cited as the bottom. Without support from Beijing, bad sentiments won't change."
In HONG KONG, the Hang Seng Index fell 1.3% to 23984.57, while the Hang Seng China Enterprises Index shed 2.5% to 12863.80.
In TOKYO, the Nikkei Stock Average dropped 1% to 13111.89. Real-estate and construction shares fell in response to the struggling domestic housing market. Obayashi dropped 9.4% after the construction company cut its earnings forecast. Tokyu Land fell 8.5% after Credit Suisse cut its recommendation.
In SYDNEY, Australia's S&P/ASX 200 declined 0.9% to 5520.20. BHP Billiton gained 3.7% on a report in the Australian that China is trying to buy a stake in the miner to thwart a potential merger