Chinese market recovers to near record high


By Joanna Chung
Financial Times, London
Monday, March 19, 2007

HONG KONG -- China's main share index on Monday rose to within striking distance of a record high -- just three weeks after its biggest fall in a decade helped trigger turbulence across global markets.

The advance came in spite of a rise in Chinese interest rates during the weekend aimed at cooling the country's booming economy.

The Shanghai Composite index ended above the psychologically important 3,000 level for the first time since February 27 when it slumped 9 percent.

It rose 2.9 percent to 3,014.44, within reach of its record high of 3,049.77.

The latest move underscores the persistent bullishness among investors for one of the world's fastest-growing economies.

"The quick rebound in Chinese stocks, the Shanghai Composite index closing above 3,000 for only the second time, underscored the prevailing optimism on the outlook for continued strong economic growth," said David Cohen, analyst at Action Economics in Singapore.

Adrian Mowat, the chief Asian and emerging mar-kets equity strategist at JPMorgan, said the move provided a "healthy re-minder" that the problems facing the markets in the past two weeks had more to do with concerns about US economic growth.

"We are still very upbeat about the outlook for the Chinese onshore stock market as well as China's offshore market," Mr Mowat said.

The dramatic movements suggest that the wider volatility across markets has done little to affect what analysts say are largely domestic factors driving the Chinese mainland market -- among them ample liquidity, optimism about China's growth prospects and pent-up demand from Chinese investors who have few other investment options.

Even after February's stock market tumble, Chinese investors have been rushing to open new stock trading accounts.

The official Xinhua News Agency reported last week that more than 1m trading accounts were opened on China's A-share market in the two weeks after the Chinese New Year.

Monday's stock market advance defied a rise in China's benchmark one-year lending rate and deposit rates by 27 basis points, to 6.39 per cent and 2.79 per cent, respectively.

"The market's ability to shrug that off suggested confidence that further rate hikes will be gradual as long as inflation remains contained," Mr Cohen said.

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