Chinese Market Tumbling

With Chinese Stocks dropping to record low, this might be a good opportunity for some. Consider the report below:

SHANGHAI - CHINA'S share market tumbled nearly 4 per cent to a 12-month closing low yesterday, as the biggest stock - PetroChina - dropped for the first time below its price in last October's Shanghai initial public offering (IPO).

After leaping more than sixfold in a two-year bull run, the market has been gripped for six months by a downtrend caused by high inflation, a threatened slowdown of the Chinese economy this year and heavy supplies of new equity.

The Shanghai Composite Index slid 3.97 per cent to end at 3,094.668 points, near its intra-day low of 3,078.174. It lost 11.4 per cent this week, its biggest weekly drop since 1996. It is now 49 per cent below last October's record peak.

Panic spread yesterday, as PetroChina broke its IPO price of 16.7 yuan. Since the oil giant was the most heavily weighted share in the index, the break was seen as negative for the whole market, implying institutions were so bearish that they were willing to take losses to exit the stock.

PetroChina closed 5.04 per cent lower at 16.02 yuan, after touching a low of 16 yuan, pressured by expectations that high global oil prices would cause losses at its refining operations.

In recent weeks, PetroChina repeatedly hit - but did not break - its IPO price, and traders said some institutions appeared to be mounting a support operation for the stock to prevent panic in the market. But yesterday, this support suddenly vanished.

'Several shares have plunged below their net asset values for the first time in over two years.

This shows how deep the panic is. Support for the key index is now seen at 3,000 points - and even below, if PetroCorp stays weak.

PetroChina's Shanghai-listed A-shares have dropped 64 per cent since their first day of trade in November, when they more than doubled, causing the company temporarily to eclipse Exxon Mobil as the world's largest firm by market capitalisation.

The shares may fall further yet. Some traders talk of targets around 15 yuan. The A-shares still command a premium of more than 80 per cent over the firm's Hong Kong-listed shares.

Pressure for premiums to narrow has become intense. The average premium for dual-listed Chinese companies fell as low as 32 per cent yesterday.

Some analysts see support for the Shanghai index at around 3,000 points, but many do not rule out a break below 3,000 if PetroChina stays weak.

'Several shares have plunged below their net asset values for the first time in over two years. This shows how deep the panic is,' said Huatai Securities analyst Chen Jinren.
REUTERS