The stock market continued to rise yesterday after a two-day bull run, sending the Shanghai Composite Index to a new high of 4,049.7 as analysts warned of a correction ahead.

 

The main indicator rose 36.6 points, or 0.91 percent yesterday, with 497 out of 907 stocks closing higher. The turnover on the Shanghai Stock Exchange was 207.7 billion yuan, down from a record high of 255.3 billion yuan, set the day before.

 

The foreign-currency denominated B-share index rose 8.48 points, or 3.14 percent to close at 278.48. It has increased a total of 114 percent this year. The smaller Shenzhen Component Index climbed 0.49 percent to close at 11,574.16.

 

Analysts said the index is rising so fast that it is in danger of quick profit-grabbing by institutional investors.

 

"The stock market needs a correction after rapid growth in recent days," said Deng Hongguang, an analyst at Orient Securities.

 

"The fluctuation range is expected to be as large as 600 points," he added.

 

Steel companies performed well in trading yesterday. Nanjing Iron & Steel soared to its daily allowable limits to close at 14.25 yuan. Baotou Steel rose 8.62 percent to close at 8.57 yuan, while Maanshan Iron & Steel, surged 9.86 percent to close at 9.47 yuan.

 

Companies in the non-ferrous and oil and chemical sectors also did well. Huludao Zinc Industry Co Ltd jumped 9.98 percent to close at 16.09 yuan, while Jiangxi Copper rose 2.96 percent to close at 25.71yuan. Sinopec, the country's largest oil refiner, jumped 5.46 percent to close at 12.74 yuan.

 

Some economists are worried that the strong performance of the domestic A-share market after the May Day holiday will raise the risk of a near-term government policy response.

 

"Most investors are focused on the question of what the People's Bank of China will do. In our view, investors should be watching the China Securities Regulatory Commission instead, as this is where the real policy initiatives are likely to come from," said Jonathan Anderson, chief economist of UBS Asia, in a research report yesterday.

 

According to Anderson, the policy actions may include renewed administrative controls on new fund inflows into the equity market, more aggressive anti-leverage measures, the possible imposition of capital gains and short-term sales taxes on equity instrument.

 

(China Daily May 11, 2007)