Stock Market Rockets on News of End to State Sell-off

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Last updated at: (Beijing Time) Monday, June 24, 2002

Stock Market Rockets on News of End to State Sell-off

Shares on the Shanghai share market shot up Monday as investors reacted with glee to news the government is to abandon a planned massive sell-off of its shares in domestically-listed companies.

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Shares on the Shanghai share market shot up Monday as investors reacted with glee to news the government is to abandon a planned massive sell-off of its shares in domestically-listed companies.

Shares on the local currency-denominated Shanghai A-share index ended the morning session up 125.71 points or 7.7 percent, at 1,756.74 amid a trading spree which saw turnover hit 33.4 billion yuan (US$4 billion).

By comparison, the turnover for the entire day's trading last Monday was just 2.87 billion yuan.

The effect was also felt on the foreign currency Shanghai B-share index, which rose 11.65 points, or 8.2 percent to 153.39 on healthy turnover of US$129.96 million.

Both Shanghai indexes had risen close to the 10 percent session limit set on most shares in initial trade before easing marginally.

China's State Council announced Sunday the government formally cancel its policy of mass sell-offs, one which has proved deeply unpopular among domestic investors.

The regulations requiring sales of state holdings through initial or additional share offerings had been formally cancelled by China's cabinet, the State Council.

"The sale of state-held shares is an important reform move that is moving in the right direction," a joint spokesman for the Ministry of Finance and market watchdog the China Securities Regulatory Commission said.

Despite this, the policy was not working because "it is hard to formulate an appropriate plan that is systematic and widely accepted by the market in a short time," he said.

Government stakes make up around two-thirds of the value of China's equity markets and the proposed plan to increase sales of state-held shares caused the A-share index to plunge 30 percent between June and October last year.

The policy was aimed at whittling down the government's stake while also bolstering the social security budget.

The sell-off was stopped in October, but towards the end of last year, Premier Zhu Rongji said it would have to be attempted again.

"It is 100 percent good news for mainland stock markets as it has dismissed investor fears that the huge chunk of state shares will put heavy pressure on market liquidity in the long term," said one from Credit Lyonnais, who asked not to be named.

Others predicted the rally would prove long-running, as exploding turnover indicated a huge influx of fresh funds entering the market Monday morning.

"The corrections over recent months are over, and shares have resumed an upward trend," said Great Wall Securities analyst Liu Jian.

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