Car Shares Surge to Buck Market's Overall Decline

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Last updated at: (Beijing Time) Tuesday, July 16, 2002

Car Shares Surge to Buck Market's Overall Decline

China's automobile shares surged Monday, bucking an overall market decline, due to optimism in the sector after key producer Brilliance China won approval for a joint venture with Germany's BMW.

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China's automobile shares surged Monday, bucking an overall market decline, due to optimism in the sector after key producer Brilliance China won approval for a joint venture with Germany's BMW.

The Shanghai Composite Index slid 10.353 points, or 0.61 per cent, to 1,687.945, while Shenzhen's declined 30.45 points, or 0.88 per cent, to 3,423.98.

Shenyang Brilliance jumped 8.60 per cent to 6.69 yuan (80.9 US cents) in afternoon trade on speculation that its van-making unit would gain a stake in the BMW venture and benefit the listed company, brokers said. Its A shares are off limits to foreigners.

But a string of corporate interim-loss warnings pushed the overall market down and the Shanghai B-share index ended down 1 per cent at 153.634 points.

Shenzhen's fell 2.35 per cent to 244.92 points. Foreigners can trade hard-currency B shares.

Major automobile stocks drew favour after Brilliance China unveiled a breakthrough on Friday in forming its long-awaited joint venture to make and sell BMW vehicles in China, brokers said.

The venture would use the plant in which Shenyang Brilliance has a 49 per cent stake to build BMWs, said Brilliance China.

The company's shares fell sharply over the past three months due to concerns about delays in the project and media reports about government probes into the firm's former chairman, which the company has denied.

Analysts said income from leasing production facilities to BMW was unlikely to give Shenyang Brilliance's balance sheet a big boost, but some investors speculated that the Shanghai-listed company may be able to make a capital investment in the deal.

An analyst at China Southern Securities said: "Investors are betting Shenyang Brilliance will have broader links with BMW, not only in leasing its car-making facilities but maybe an actual stake in the new venture."

A Shenyang Brilliance spokesman declined to comment.

Shares in investment firm Shanghai Brilliance, another member of the Brilliance group, rose 4.41 per cent to end at 4.50 yuan (54.4 US cents), the second-biggest A-share gainer in Shanghai.

The Brilliance-BMW news helped other listed auto makers to surge as well.

Broker said that, although new entrants could intensify competition in the already crowded market, investors saw more foreign interest as a reflection of confidence in the potential of China's fast-growing demand for cars.

In Shenzhen, compact-car maker Tianjin Auto was among the best performers, advancing 2.41 per cent to 7.21 yuan (87.2 US cents).

The broad share market fell after five companies said on Saturday they expected to report a loss in the first half of this year.

Shenzhen Petrochem's B shares slid 2.81 per cent to end at HK$4.15 (53.2 US cents).

More than 120 companies, or more than 10 per cent of those listed, have forecast losses for the first six months of 2002. Chinese firms must warn investors of a loss or sharp fall in profits before reporting their interim results by the end of August.

An analyst at Qinghai Securities said: "Investors are normally pretty cautious when a reporting season just begins, especially when the number of loss warnings keeps rising."

Domestic A shares, reserved for Chinese investors, ended down more than half a percentage point as corporate earning woes weighed on sentiment that had become cautious after a market consolidation last week, brokers said.

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