Shanghai Composite Index Plummets to Below 2,900 Points

By Huang Liming
Published: 2010-11-16

Economic Observer Online
November 16, 2010
Translated by Chen Ximeng
Original article:

Chinese A-shares fell heavily again on Tuesday, after a brief respite on Monday saw the market regain some of the heavy losses witnessed last Friday when the Shenzhen index fell by 7 percent and the Shanghai index experienced its largest single-day drop since August 31, 2009.

After climbing to back above 3,000 points on Monday, the Shanghai Composite Index dropped 3.98 percent during Tuesday's trading, falling to a close of 2894.54 points. The Shenzhen Component Index also fell sharply on Tuesday, dropping 4.61 percent to a close of 12,217.27. The combined total turnover on both exchanges was 40.19 trillion yuan.

Both indexes fell sharply during afternoon trading with resource stocks being hit particularly hard.

Analysts say that the market was reacting to the Bank of Korea's decision to raise its key policy rate by 0.25 percentage points and concerns that the People's Bank of China, China's central bank, might either raise interest rates again or adopt other measures that would result in a futher tightening of monetary policy in an attempt to rein in inflationary pressures.

The market also reacted adversely to reports that the National Development and Reform Commission (NDRC), in cooperation with other central ministries, was considering adopting a suite of policy measures aimed at controlling rapidly growth consumer prices.

Investors fear that such measures might include the announcement of price controls and other administrative measures such as those issued by the NDRC in April 2004 and January 2008 and which are likely to have an adverse effect on company performance.

Similarly, investors also fear that the central bank and the China Banking Regulatory Commission (CBRC) might once again tighten lending conditions as they did in October 2007 and in January of this year.

Links and Sources
Google Finance:
Shanghai Composite Index Graph

Google Finance: Shenzhen Component Index Graph