Opinion differs on how stock market will perform

AS the stock market on China's mainland welcomes 2008 there is divided opinion on what the year will hold as some analysts and investors believe the arrival of the new year signals the end of a bull market while others think just the opposite.

The difference in opinion is due to the realization that the performance of the stock market this year will depend on a mixed recipe of factors.

They include China's macroeconomic prospects, Olympics effect, investors' sentiment, outcome of a tighter credit control, a possible recession in the United States and the yuan's exchange rate.

Some of these factors will continue to exert an influence over the market after having played a part last year.

In 2007, the Shanghai Composite Index climbed to a record high of 6,124.04 points in October from a year's low 2,541.52 points.

The Shanghai Stock Exchange reported a total turnover of 38 trillion yuan (US$5.1 trillion) last year, up 3.13 times from the figure a year earlier.

Transactions involving stocks amounted to 3.05 trillion yuan, a whopping jump of 428 percent year on year. Turnover of warrants more than doubled to 4.98 trillion yuan while bond trading expanded 12.52 percent to 2.03 trillion yuan in 2007.

The local bourse, together with its counterpart in Shenzhen, attracted 137.95 million trading accounts. Also, a total of 120 companies raised 446.9 billion yuan from initial public offerings last year on the Chinese mainland. Twelve of those firms netted more than 10 billion yuan to become heavyweight chips.

They pushed the yuan-denominated A shares to surpass 30 trillion yuan in market value, ranking the Chinese mainland among the world's top four markets in terms of capitalization.

China's fast growing economy, the people's wild enthusiasm to invest and strike it rich, as well as excess liquidity from the nation's trade surplus were among many factors that contributed to the remarkable performance of the domestic stock markets in 2007.

For the future, many analysts are positive and have predicted an upswing with constant fluctuations.

Guotai Junan Securities Co estimates the key Shanghai index will range between 5,041 and 8,089 points this year while Cinda Securities Co sees the measure between 3,800 and 7,000 points. Bohai Securities forecasts the index will stay within 4,300 and 7,400 points.

China's continued rapid economic growth remains the number one booster to support the domestic stock market.

China's economy will expand 10.9 percent this year, cooling a bit from last year's 11.4 percent, the central bank's research unit forecast in a report earlier.

Although the pace of growth will be slower, it will still be considered on the fast track and strong enough to sustain investors' positive sentiment for stocks.

The economy is expected to be bolstered by expanding consumer expenditure due to government's efforts to switch economic drivers from investment and exports to domestic consumption. It has done this via cutting taxes, raising minimum wages and spending on education, welfare and health care.

Meanwhile, the 2008 Beijing Olympics will also give the domestic stock market another boost.

It is estimated that the Olympics will attract about 680,000 foreign visitors and more than two million Chinese to Beijing and will help to raise the number of total visitors to the capital to 6.4 million from overseas and 160 million from home for the whole year. The influx of visitors will boost sectors such as hotel, catering and retail in the capital.

While the Olympics may benefit Beijing and nearby areas only, a set of new products and reforms, expected to debut this year, of the stock market will transform some sectors.

This year, China might launch the long-awaited stock index futures after having completed systematic and technical preparations. The move will be significant as it will permit investors to sell short in China's stock market for the first time.

It helps to expand the financial spot market, stabilize the capital market and strengthen the economy's resistance to risks. Above all, it will bring new businesses to brokerages, many of whom have plans to list this year.

Also, China might debut its Nasdaq-like growth board to accommodate start-up companies while Hong Kong-listed shares, or red chips, as well as foreign-invested firms might get the nod to be traded in the A-share market.