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Shares to climb but correction later in week

(Shanghai Daily)
Updated: 2007-05-28 10:24

Shanghai shares may continue to climb early this week as heavy turnover is expected due to bullish investor sentiment but analysts see a correction occurring later in the week on profit taking.

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They are, however, still upbeat about the overall prospects as they believe any fall in the index offers bargain hunting opportunities in a market that is flush with liquidity.

The Shanghai Composite Index, which covers yuan-denominated A shares and hard-currency B chips, soared 3.71 percent last week to close Friday at 4,179.78, an all-time record.

Combined turnover during last week's five trading days totalled 1.15 trillion yuan (US$150.6 billion), the heaviest ever for any single week since the bourse started trading in 1990.

The benchmark barometer shrugged off the government's austerity measures such as interest-rate rises as well as regulatory warnings, which market watchers see as evidence the investment frenzy would continue.

"People know risks are mounting, but they still put their money in and bet that the bull run to continue for weeks," said Zheng Tianwen, a Shanghai Securities Co trader. "As China's economy and companies' profits keep expanding, capital will constantly flow to the stock market."

Although playing down the possibility of a sudden market plunge, industry analysts suggested investors should focus on fundamentals of individual firms and avoid picking firms simply based on market speculation and rumors.

They predicted that blue chips, especially those under-performing the market average in the past month, should re-gain favor and advised investors to cut stock exposure to under 50 percent of their portfolios.

"In the short term, the market apparently lacks momentum to go up further and will possibly stay in a defensive style," said Zhang Jun, a China Galaxy Securities Co dealer.

"The market seems to be divided on whether the rally can sustain for a longer period. Under this scenario, investors should be cautious and limit their stock holdings."