Stocks gear up for growth

Stocks gear up for growth

After yesterday's quick shifts in corrections, Chinese stocks formed a clear upward trend this morning. The Shanghai Composite Index closed at 3,832.09 by noon, up 55.77 points or 1.48 percent.
Opening higher from 3,787.70, the index climbed up in waves with a few setbacks, none of which was deep enough to reverse the trend. The index hit the lowest point at 3,779.50 in a dive right after the opening, and the highest at 3,839.25 soon before 11:30, both higher than yesterday's closing level.
The Shenzhen Component Index, tracking the smaller Shenzhen Stock Exchange, closed at 12,612.86, up 274.68 points or 2.23 percent. It went through the morning session within a range from 12,357.56 to 12,638.80. Of the A-shares, as many as 1,178 went up, while 134 fell and 121 closed unchanged. Cosun ranked on top of the Shanghai exchange with a 10.05 percent surge to 8.87. Nafine Chemical Industry Group rose 10.07 percent as the biggest gainer in the Shenzhen bourse.
China Unicom rose 0.01 yuan with the largest trading volume and Sinopec fell 0.05 yuan with the largest transaction value in the Shanghai bourse. TCL and China Vanke ranked on top in the Shenzhen bourse.
Stocks in the construction, pharmaceutical and mining industries led the surge. CRBC International was sealed at the maximum increase cap of 10 percent to pioneer the construction sector. Machinery makers also performed well today.
B shares were up. Of the 109 B shares listed on the two exchanges, 55 rose and nine ended flat. Closed-end funds listed on the exchanges were also strong.
Analysts believe price correction is inevitable, even if there were no such a stamp tax hike. Bubbles in deed existed in the stock market. The latest data showed that in May there had been 29 stocks with price to earnings (P/E) ratios higher than 1,000 in the Shenzhen bourse, compared with only three stocks in January.
Chongqing Yukaifa and Yantai Dongfang Electronics Information Industry had P/E ratios at 8,000, followed by ST Anhui Feicai Vehicle with P/E ratio of 3,850. Five stocks had P/E ratios between 2,000 and - 3,000 and the rest 21 between 1,000 and 2,000.
The recent market corrections have scared many investors away. New A-share accounts opened on June 5 were 162,200, the fewest for two months. Total account opening was 189,100 at the two stock exchanges, including 2,396 B-share and 24,500 fund accounts for that day, according to China Depository and Clearing Co Ltd.
By Tuesday, there had been 102,692,900 investment accounts in the two bourses, including 88,818,500 A-share, 2,185,800 B-share and 11,688,600 fund accounts.
Many investors fear China may impose a capital gains tax to cool an "overheated" stock market. But legal experts think it is impossible that such a tax will be issued overnight like the stamp tax hike, according to the Shanghai Securities News.
"Based on the State Council's 1988 Provisional Rules for Stamp Tax, adjustment in the stamp tax rate may be decided by relevant government bodies," said a source. "But the capital gains tax is a completely new tax. There are no legal grounds for it now. It needs to go through a full procedure of legislation before it is for approval by the taxation authority."
Central bank vice governor Wu Xiaoling said on the sidelines of a financial forum held in Tianjin yesterday that the recent turmoil in the stock market is not detrimental enough to affect the Chinese economy.
Wu stressed the importance of a stable and healthy capital market to the country's economic growth. All the central government did were for the long-term development of the market, she said. Investors should build up or recollect their confidence in the economy and the stock market. They should also understand the goodwill by the regulators and improve abilities of risk assessment and control, she added.