Swiss banking giant UBS AG became the first foreign institution yesterday to invest in the US$500 billion A-share markets under the Qualified Foreign Institutional Investor (QFII) programme, brokers said.

Analyst Zhou Lin of Huatai Securities said: "Market sentiment was not spurred by the news as it has long been expected.

"Cautious investors are adopting a wait-and-see attitude during the mid-year corporate results season," he said.

More than 1,200 listed firms are required to report first-half earnings between the beginning of July and August 31.

The benchmark Shanghai composite index, grouping hard-currency B shares for foreign investors and yuan-denominated A shares, finished 0.58 percent lower at 1,503.314 points. It has gained nearly 11 percent this year, partly in anticipation of imminent capital inflows under the new reforms.

Shenzhen's sub-index dipped by 0.69 percent to 3,306.43 points.

Analyst Hu Zhiguang at China Securities said: "The QFII news has largely been factored into share indices. "Investors also do not expect an immediate large inflow of foreign money."

Analysts said the markets were unlikely to embark on a sudden uptrend due to news of the QFII investment but they expected money inflows to offer some support in the medium term.

According to analysts, the scheme is likely to attract US$10 billion at best over two years, still a fraction of the overall market.

Previously, foreign investors were restricted to the small B-share markets with a combined market capitalization of around US$11 billion.

On behalf of a client in Hong Kong, UBS invested in the telecom equipment maker ZTE Corp, top Chinese steel maker Baoshan Iron & Steel, Shanghai Port Container and in the major logistics provider Sinotrans Air.

Baosteel closed 0.95 percent higher at 5.29 yuan (63.7 US cents), while Shanghai Port gained 1.2 percent to 12.83 yuan (US$1.54). ZTE Corp rose 2.1 percent to 18.46 yuan (US$2.22).

But Sinotrans Air fell 0.15 percent to 20.55 yuan (US$2.47).

Shanghai's hard-currency B-share index edged down 0.51 percent to 111.996 points, while Shenzhen's closed unchanged at 221.68 points.

Yaxing Coach's A shares were the second-biggest decliner in Shanghai with a 4.31 percent fall to 7.54 yuan (90.8 US cents) after the bus maker forecast yesterday it was likely to report losses for the first half of this year.

On the foreign-exchange market, China's yuan ended two notches weaker at 8.2775 to the US dollar yesterday, keeping its strength within a managed trading range.

The yuan was sandwiched between 8.2773 and 8.2776 throughout the session, near the firm end of a wafer-thin band of 8.2760 to 8.2800 that the People's Bank of China usually enforces. Turnover fell to a thin US$330 million from Tuesday's US$510 million.

Healthy trade surpluses and foreign investment have kept the yuan - which is not freely convertible under the capital account - at the stronger end of its range over the past two years.

Dealers said China was exploring ways to make its rigid foreign-exchange regime more flexible but was unlikely to go through with a revaluation this year despite pressure from countries such as South Korea, Japan and the United States.

The yuan rose to 6.9987 against 100 Japanese yen from 7.0135 on Tuesday, but it softened versus the euro to 9.3796 from 9.3692. It ended unchanged against the Hong Kong dollar at 1.0610.

(China Daily July 10, 2003)