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China's shares dip to 16-month low, bringing month's decline to 20 percent

AP - Tuesday, July 1

BEIJING - Chinese shares dipped Monday as the market wrapped up a dismal month in which the market index plunged 20 percent on worries about oil prices and a possible rate hike to cool inflation

The benchmark Shanghai Composite Index closed down 0.45 percent at 2,736.10 points, its lowest level since February 2007. The Shenzhen Composite Index for China's smaller, second market fell 0.34 percent to 793.13.

"We're nearing the bottom, and there's little room for further decline," said Zhang Xiuqi, analyst with Guotai Junan Securities. Zhang said investors are waiting for the next round of corporate profit reports in coming weeks to gauge the strength of the economy.

"The market has had a hard landing," Zhang said. "It has been extremely miserable in the first half of year, and we expect the second half to be better."

Chinese shares have been battered by high oil prices and a central bank warning that interest rates might be raised to cool inflation. The main Shanghai index has lost 55 percent since its peak of 6,092.06 points on Oct. 16. The index is down 20.3 percent from its 3,433.35 point level on May 30.

Prices plunged Friday by 5.3 percent on disappointment that Beijing has taken no steps to support the market. Many investors had expected the government to take steps to prop up prices if necessary to maintain a positive atmosphere for August's Beijing Olympics.

Corporate profits have been growing strongly amid a boom that saw the economy expand by 10.6 percent in the first quarter. But after a sharp runup in stocks last year, investors have been spooked by record-high oil prices, their possible impact on profits and warnings Beijing might hike interest rates to cool inflation that is near 12-year highs.

"With all the uncertainties in the market, including the oil price, we believe the market would remain sluggish for the foreseeable future," said Oriental Securities analyst Zhang Yang.

The recent sharp drop matched the rapid speed at which prices rose last year during China's market boom, Zhang said.

"This is symmetrical to the market craze last year. The market slumped after it skyrocketed," he said. "People were overly optimistic last year. This year, they've been overly pessimistic."

On Monday, big-cap stocks fluctuated slightly while some travel- and sports-related shares rose on possible optimism about strong business ahead of the Olympics.

PetroChina Ltd., China's biggest oil company, was down 0.4 percent. Industrial & Commercial Bank of China Ltd., the country's biggest lender, was down 1 percent. China Telecom Ltd. rose 0.24 percent.

China Sports Group, which builds and manages sports facilities, rose the daily limit of 10 percent on possible investor expectations of a post-Olympics jump in public interest in sports. Beijing Capital Tourism Co. and CYTS Tours Holding Co. also rose 10 percent.

Zhang said the government might feel compelled to unveil new policies to restore investor confidence but he expressed skepticism they could have much effect.

"Even if there were government measures, they would be of little use," Zhang said, "They can't buck the trend."

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Didi Tang in Beijing contributed to this report.

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