Almost all the stocks listed on the Shanghai and Shenzhen exchanges will be traded normally today despite rules on suspension of shares which witness wild fluctuations - a move analysts say could prevent panic selling.

 

Only a few shares in Shanghai and two in Shenzhen will be suspended for an hour at the beginning of trading, the two bourses announced yesterday.

 

According to current rules, trading in a stock that has fluctuated by more than a cumulative 20 percent on three successive days has to be suspended for one hour and the company needs to issue a statement to clarify the "abnormal price fluctuation".

 

If the rule were enforced, trading in hundreds of stocks on the Shanghai and Shenzhen exchanges would have been suspended.

 

But bourses have the right to waive the rules in exceptional situations.

 

The Shanghai Stock Exchange said yesterday that trading will be allowed in 264 stocks whose companies had made a statement by Saturday explaining the fluctuations.

 

This means that trading will be suspended in only a handful of companies which had not made the statement.

 

The Shenzhen bourse said 46 shares which met the original suspension criteria would be traded and only two would be suspended for an hour.

 

The stock market saw a big correction since last Wednesday after the government raised stamp tax from 0.1 percent to 0.3 percent. The Shanghai Composite Index dropped 7.7 percent by Friday, while the Shenzhen Composite Index fell 12.7 percent.

 

"The Shanghai Stock Exchange adjusted the rule to ensure normal trading, and offset some of the negative impact triggered by panic selling," said Chen Weiran, an analyst at Guotai Junan Securities.

 

Many investors attribute their losses to the raised stamp tax but the move is actually conducive to a healthy market, said Li Yining, a senior economist with Peking University.

 

"Excessively high turnover (in the domestic market) is detrimental to a healthy market," he said over the weekend.

 

"Regulators have a lot of cards to play," Yin Zhongli, an economist with the Chinese Academy of Social Sciences, told China Daily.

 

Besides raising the interest rate and banks' required reserve ratio, regulators can strengthen investigation into insider trading and price rigging to cool speculation, said Yin.

 

"The government has the responsibility to clean up the market to ensure healthy development."

 

(China Daily June 4, 2007)