Updated: 2008-01-21 16:44
Chinese stocks plunged 5.14 percent on Monday after 1.7 trillion yuan in market value evaporated in last week's turmoil. The news of Ping An Insurance's 160 billion yuan additional share and bond issue triggered panic selling. Other depressive factors included heightened expectations of an economic recession in the US and possible diversions of capital influx to a second stock trading board.
Ping An Insurance Group, the nation's second largest life insurer, will seek shareholders' approval on issuing 1.2 billion A-shares traded on the Shanghai Stock Exchange at a par value of 1 yuan each. Based on its previous closing price, or 98.21 yuan apiece, the 1.2 billion A-shares will soak up 118 billion yuan from the market.
The Shenzhen-based company will also issue no more than 41.2 billion yuan worth of convertible bonds with warrants which entitle the purchase of its shares. The bonds will have a term of six years.
The 160 billion yuan will be the largest amount in a re-financing share issuance in the history of China's A-share market, and too big for the market to handle smoothly, said analysts. As a result, investors panicked and dumped their holdings. Ping An fell the maximum of 10 percent to close at 88.39 yuan. But the negative sentiment did not stop there. The other two listed insurers, China Life and China Pacific Insurance Group, dropped 8.76 percent and 8.82 percent respectively. Then the whole financial sector collapsed as heavyweight bank shares and securities brokers were dragged down.
The Shanghai Composite Index plummeted 5.14 percent or 266.08 points to 4,914.44, the biggest single-day drop in over half a year since the May 30 period last year. Turnover was 132.2 billion yuan, slighter higher than last Friday. Of the A shares listed in Shanghai, only 86 moved up and 61 had little change, while 703 fell.
The Shenzhen Component Index dropped 920.46 points or 5.08 percent to 17210.93. Turnover was 69.5 billion yuan. Of the A shares, 532 ended lower, 64 climbed up and 83 remained unchanged.
A one-and-half year bull run in the stock market is set to slow down, if not turning into a sluggish bear, said analysts. According to fourth-quarter reports from 277 mutual funds managed by China's 40 fund companies, a majority of the stock funds have reduced their holdings in A shares. When the market tumbled last week, dumping of shares by these mutual funds was more apparent, sources said.
In addition, although not a major cause of today's plunge, the expected second stock trading board may add more pressure for falling prices. Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, said at a financial forum over the weekend that the preparation work for the launch of stock index futures and a growth market have been completed. The news is actually no surprise and neutral to investors, but may be interpreted the wrong way in the midst of market turmoil like this, said analysts.
It seemed there was discouraging news from every corner of the world, said a sad retail investor. The US economy is closer to a recession as economists believe California and Florida, the biggest and fourth-biggest states of the US, have slowed down. Wall Street investment bank Merrill Lynch last week announced a loss of US$10 billion in the fourth quarter last year, its biggest quarterly loss since 1994.
