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B Shares Down After Central Bank Comment
China's hard-currency B shares closed down slightly yesterday, as investors worried central bank comments might signal a move to allow personal foreign exchange deposits to be invested overseas.

Shenzhen's B-share index edged down 0.33 per cent to 232.66 points. Turnover remained thin at HK$138.35 million (US$17.7 million), although that was up slightly from US$132.89 million (US$17 million) on Friday.

Shanghai's B shares inched down 0.01 per cent to 152.219 as turnover fell to a tiny US$14.17 million from US$23.71 million.

Central bank Governor Dai Xianglong was quoted by newspapers as saying yesterday the issue of setting up a financial institution to invest some of China's foreign currency personal savings in markets overseas had become a "hot topic."

He did not elaborate, but the report spooked punters.

"Investors believe liquidity will quickly flow out of the B-share markets if China allows personal foreign exchange deposits to be invested in overseas bourses," said a floor trader at a foreign brokerage in Shanghai.

"Chinese citizens who have foreign exchange deposits have long yearned to put their money in overseas stocks as the quality of B-share companies is generally poor," he said.

The B-share markets, set up in 1992 as an experiment to attract foreign investment in China's capital markets, are dominated by firms in sunset industries such as home appliances and machinery manufacturing.

Many of China's 112 B-share companies have reported poor earnings or losses over the past five years, prompting many institutional investors to flee the markets.

Regulators allowed Chinese citizens into the markets in February 2001 but are reluctant to expand the markets, and they have not approved a single B-share initial public offering since October 2000.

Despite the fall, brokers said B-shares prices were likely to recover soon due to strong domestic A share markets.

A shares, reserved for Chinese investors, closed up yesterday, continuing a three-week uptrend on repeated official pledges to support the market.

Brokers said A shares had seen support from Dai Xianglong's comments that the government would try to divert more of China's 8 trillion yuan (US$960 billion) in local currency personal deposits toward capital markets.

"Dai's remarks on diverting individual renminbi (yuan) deposits to the capital markets are regarded as a positive factor to the A-share markets," said analyst Feng Yucheng of Beijing Securities.

Shanghai's A index ended up 0.34 per cent at 1,748.447 points and Shenzhen's was up 0.43 per cent at 511.41.

Shanghai's composite index also finished up, gaining 5.60 points to 1,675.30. Shenzhen's composite index, weighted down by falls in B-shares, ended a shade lower, shedding 0.65 to 3,312.11.

China's much larger A-share markets, capitalized at some US$500 billion (US$60 million), typically lead B-share markets, which at US$15 billion are a mere fraction of the size.

Washing machine manufacturer Wuxi Little Swan was yesterday's biggest B-share decliner as its forecast 2001 profit dropped more than 50 per cent due to the weak home appliances market and tighter accounting rules.

Little Swan closed down 4.64 per cent at HK$5.55 (US$0.71) on heavy volume of 1.7 million shares.

Listed firms have until April 30 to publish 2001 results.

On the foreign exchange market in Shanghai, China's yuan closed slightly firmer against the US dollar yesterday as the country's strong exports continued to propel dollar sales, dealers said.

(China Daily March 26, 2002)

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