CHINA: China stock market recovers after sell-off that sparked a global market meltdown.

China stock market recovers after sell-off that sparked a global market fall. Many traders attributed the Chinese market plunge mainly to hectic speculation. Investors in the country's commercial centre Shanghai said they were confident of their stock market despite Tuesday's plunge. China's main stock index opened lower on Wednesday (February 28) but recovered quickly and moved into positive territory as heavily weighted financial blue chips climbed. The benchmark Shanghai Composite Index opened down 1.34 percent, but after five minutes stood 1.18 percent higher at 2,804.454 points. On Tuesday (February 27), Chinese stocks plunged nearly 9 percent, erasing about 140 billion U.S. dollars (USD) of value in their biggest fall for a decade, amid fears that authorities would crack down on the speculation that had driven shares to record highs. The tumble came a day after the main index jumped to an all-time high, bringing its gains for this year to 14 percent. The market soared 130 percent last year, making it the world's best-performing major market. Mainland stocks were hit by several rumours in late trade on Tuesday, including talk that authorities would take steps to cool speculative activity, including potentially an interest rate hike. But the official Shanghai Securities News reported on its front page on Wednesday that the Chinese government is not planning to tax stock gains. Many traders attributed the China markets plunge mainly to hectic speculation. "Yesterday the (Chinese stock) market had a huge fall and this also led to the plunge in global stock markets. As for the (Chinese stock) market, I feel it was mainly affected by certain rumours, some investors felt that the government would take measures to control the stock market and more importantly some felt that the central bank would raise interest rates or impose a stock capital gains tax. But after detailed analysis, we can find that even if the central bank raises interest rates, it would be good for the overall economy. Such an adjustment is not directed at the stock market and from what we can see in the direction of the central bank's policies last year, such measures would only lead to a short term correction in the stock market and would not affect its overall upward trend," said Major Teng, manager of the investment advisory department of Everbright Securities. Analysts said Chinese investors remained nervous after Tuesday's rout but recently created funds had entered the market to accumulate shares for long-term investment. Officials denied various rumours that fuelled Tuesday's tumble, including talk that China might impose a stock capital gains tax and that the head of the securities regulator might step down. In addition, investors believe the government, which wants to list big state firms on the market this year, will not permit a collapse that could endanger those plans, traders said. Many see good technical support for the index at the February low of 2,541, from which it bounced sharply early in the month. "Even though the Chinese stock market experienced a huge rise last year, it is a strong bull not a crazy bull. With such a huge correction yesterday caused by rumours or external factors, this (fall) will not affect the market's overall upward trend. It has only changed the speed of the market's rise. And in my personal opinion, the 3,000 mark for the Shanghai stock market will not reach the highest it can reach this year, it is a matter where investors have a differing opinion on how the market will go forward. The correction is only a technical one," Teng added. Chinese investors in the country's commercial centre Shanghai said they were confident in the stock market despite yesterday's plunge. Many said it was a time to buy into shares with their bargain prices. "I will not lose confidence in the stock market. The Chinese economy is doing well and if the stock market plunges, this is the time to go in and buy stocks. As the stock market plunges, the market will be clearly washed out and when it rises again it will have better fundamentals. If the stock market keeps on rising, this is not good for all of us investors. An adequate correction is a good thing for us," said 44-year-old investor, Mr. Lin. "I have confidence (in the stock market) because there are many factors are beneficial to our economy. The plunge in the stock market is normal, so that is the reason why I am buying," said 45-year-old investor Miss Dong. Global investors had dumped Asian shares and emerging market bonds on Wednesday as a global sell-off that started in China gathered steam after Wall Street stocks shed more than 3 percent overnight. Spooked by a collapse in Chinese stocks and weak U.S. manufacturing data, investors fled to safety, pouring money into less-risky bonds and sending the Dow Jones Industrial Average down in its worst slide in point terms since the aftermath of the Sept. 11, 2001 attacks. Asian indices mirrored, and in some cases, exceeded the U.S. decline, with Hong Kong's Hang Seng Index opening 3.58 percent lower and the H-share index of Chinese shares listed in Hong Kong starting nearly 6 percent lower before trimming some of those losses. The benchmark Hang Seng Index had shed 579.33 points to 19,568.54 by mid-session, paring earlier losses as bargain hunters stepped in and after China's main stock index swung to positive territory. The index dropped more than 700 points at the open to hit its lowest levels since January 11. ssk/jrc

ITN Source | February 28, 2007

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