Shanghai and Shenzhen lose about five per cent. Hong Kong’s index rises instead. Investors fear new measures the government might take to raise the cost of money. Many analysts warn that stock and property markets are volatile and call for caution.
Beijing (AsiaNews/Agencies) – China’s bourses suffered strong losses following reports that the mainland economy grew by 11.5 per cent in the third quarter of the year despite repeated government attempts to cool the sizzling economy. Investors are concerned about new anti-inflation measures Beijing might implement; analysts are worried about the Shanghai and Shenzhen exchanges.
The Shanghai Composite Index dropped 4.8 per cent yesterday, the most since July 5, amid concern that interest rates would be raised for the sixth time this year to curb rising consumer prices and slow fixed-asset investment. The Shenzhen Composite Index fell 5.43 per cent.
Many expect Beijing to raise the cost of borrowing to slow economic growth and increase banks’ compulsory monetary reserve assets to reduce liquidity.
Stock sell-off stems from investors fear that higher interests will reduce companies’ profits.
Shares in Hong Kong climbed to a fresh record instead with the Hang Seng Index closing up by 1.78 per cent.
But a sharp drop in mainland share prices would have “serious implications” for Hong Kong's monetary and financial stability, Joseph Yam Chi-kwong, the chief executive of the Hong Kong Monetary Authority, said yesterday.
In 2007 the government raised interest rates five times and adopted other measures with minor effects on the rate of inflation. In fact the risk of inflation remains high. Industrial production jumped 18.9 percent in September.
Investment guru and billionaire Warren Buffett, chairman of Berkshire Hathaway, warned investors in Chinese exchanges to be cautious because the market is “too hot” after surging by 107 per cent this year.
The stock market added US$ 2.5 trillion in value this year, i.e. the equivalent of GDP in 2006.
The Yuan yesterday rose to its highest level against the greenback—7.4834 per dollar—confirming its slow but steady appreciation vis-à-vis the US currency. For many experts a faster appreciation would make exports more expensive and help to slow the inflow of cash from a trade surplus.
A major driver of the growth has been a construction boom, with fixed-asset investment up 25.7 per cent so far this year. Retail sales, a measure of personal consumption, were up 15.9 per cent year on year.
Separately, Fan Gang, a director of the National Institute of Economic Research, told Reuters that stock and property market bubbles were the biggest short-term threats facing the mainland economy.