SHANGHAI: Chinese equities fell Monday, the first trading day of the Year of Tiger in the nation's lunar calendar, after a nine-day holiday break, as market participants considered new policies and rules the government adopted prior to and after the festival.
The benchmark Shanghai Composite Index on the Shanghai Stock Exchange closed at 3,003.4 points Monday, down 0.49 percent, or 14.74 points, from the previous close.
The Shenzhen Component Index on the smaller Shenzhen Stock Exchange ended at 12,213.54 points, down 91.24 points, or 0.74 percent.
Analysts said that proceedings in preparation for upcoming trade in stock index futures, the approach of margin trading and signs of central bank liquidity tightening over the past couple weeks accounted for the lackluster market performance.
On Feb 8, a system for eligibility to trade stock index futures was unveiled. On Feb 20, the China Securities Regulatory Commission, the industry watchdog, approved the stock index futures contract trading and related rules.
On Feb 12, the central bank announced it would raise commercial banks' reserve requirement ratio by 0.5 percentage points to 16.5 percent on Feb 25. It was the second upward adjustment of the ratio within one month, and stock markets interpreted the adjustment as a sign of further money supply tightening.
"Quite a lot of new policies and rules came out in a short period of time. That has made investors cautious. Such a phenomenon has seldom been seen at previous Lunar New Years," said Qiu Yanying, chief analyst with Shanghai-based TX Investment Consulting Co.
The series of new polices confused some retail investors like Ba Shen from Shanghai.
"I hesitate between short-term speculation and long-term holding. And I don't know in which stocks and sectors I should make investment," he said.
But some analysts are optimistic.
According to Li Quan, vice president of Bosera Funds Management Co Ltd, stock index futures and margin trading business will allow traders to hedge their positions and be a mechanism for stabilizing price fluctuations.
Such innovations are usually an opportunity for speculation after they launch, said Gui Haoming, chief analyst with the research institute of Shenyin-Wanguo Securities.
Most analysts believe that, against a backdrop of moderate inflation, profitability of listed companies will improve steadily, and that it is worthy paying attention to emerging sectors like low-carbon businesses and new energy.
They agreed fundamental factors, mainly the economic recovery and increased corporate profitability, will be the driving forces behind the Chinese stock markets this year.
According to TX Investment Consulting Co, the 143 listed companies that had released 2009 corporate earnings reports by Feb 11 had recorded 26.37 billion yuan ($3.87 billion) in net profit, up 26 percent from the 2008 level.
The TX Investment Consulting Co estimated that the total net profits of 964 companies in 2009, which were yet to release annual corporate reports, would reach 345.49 billion yuan, up more than 60 percent year-on-year.
However, pressure will come from further market expansion.
The Shanghai and Shenzhen bourses edged into the world's top three in January in terms of money raised through initial public offerings, or IPOs.
Seven out of the world's top 10 IPOs last month were made by Chinese firms.
According to accounting firm Price Waterhouse Coopers, 320 billion yuan will be raised in IPOs on Chinese markets in 2010.
The accountant firm also predicted that if the international board launches this year, at least 100 billion yuan will be raised. The international board is designed for foreign companies to list on the Chinese mainland.
