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Investment curbs easing fails to lift B shares
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Yang Yunfei
CHINA'S B shares closed down on Friday as a long-expected buying spree failed to materialize after the authorities dropped a three-month ban on foreign currency deposit to free more local funds into the hard currency markets.
The Shenzhen's B-Share Index slid 15.84 points, or 3.72 per cent, to 409.67 on moderate turnover of HK$1.98 billion, compared with HK$2.23 billion previously.
But Friday's drop did not dampen domestic investors' sentiment and many lined up to transfer more bank deposits into their trading accounts, confident fresh liquidity would push prices up again.
"In the long term, I think there is still room for B shares to go up," said an investor queueing at the Bank of China in downtown Shenzhen on Friday to move money into his trading account.
"But I'm not going to buy immediately as the share prices of some stocks have already more than doubled. Maybe I will buy into some stocks when prices fall a bit in the future."
China on June 1 lifted the restrictions on buying B shares with foreign exchange deposited after February 19, unleashing another estimated US$2 billion to US$3 billion into the B share markets.
Many expected the day would be a repeat of February 28, the first trading day when domestic investors with foreign exchange deposited in banks before February 19 were officially allowed into the formerly foreigners-only B share markets. B shares surged across the board to hit their 10 or five per cent daily limit-up within minutes of trading and the bull run continued to record staggering gains in the proceeding several trading sessions, making the 113-counter markets the best-performing ones in the world this year.
But the hoped-for rally did not materialize as some long-term players took this opportunity to cash out and retail punters remained cautious.
Hundreds of thousands of domestic punters have piled into the B share markets since late February when China officially allowed domestic investors to buy B shares for the first time. The market deregulation freed up to US$75 billion in savings available for investment and sent share prices skyrocketing.
By Friday's close, the Shenzhen B-Share Index had risen 221 per cent since February 19, while the Shanghai index had gained 182 per cent. The markets' combined capitalization had surged to about US$21 billion from a pre-reform US$7 billion.
Analysts said that valuations were too expensive, with the average price-to-earnings (P/E) ratio of around 50 times against some 20 before the market reform.
"The market is vastly overbought after the strong rally and profit-taking pressure also mounted. Some investors, especially institutional investors, took this opportunity to cash out and it's very natural to have some correction," said Wang Chunjiang at Guotai Jun'an Securities.
Analysts said many people overlooked the fact that the new funds weren't immediately available to boost the markets as it would take at least three working days for brokerages to transfer investors' deposits into their B share trading accounts, which means that new investors must wait until Wednesday to buy B shares.
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