China's stocks saw their biggest drop in two weeks yesterday,
amid fears of a possible domestic interest rate hike.
The Shanghai Composite Index, the mainland's main stock index,
fell 1.97 percent to close at 2,906.334 after hitting a low of
2868.807 points.
The latest consumer price index (CPI) figures are believed to
have triggered a new round of speculation on a possible domestic
interest rate rise in the near future.
China's CPI rose 2.7 percent in February on the same month last
year, up from 2.2 percent in January.
The acceleration of loan growth to 17.2 percent in February,
from 16 percent in January, and money supply growth to 17.8 percent
on the previous year from 15.9 percent in January, also exerted
pressure on the central bank to further tighten monetary policy,
including via an interest rate hike.
Ma Jun, chief economist of Deutsche Bank Greater China, said the
central bank would increase the interest rate by 27 basis points in
the next four to six weeks.
Speculation of a possible tightening of monetary policy
heightened investors' already fragile sentiment, which had just
recovered from a recent market correction that saw an 8.84 percent
dive on February 28.
However, analysts said an interest rate hike had already largely
been factored in to prices.
"It is natural for the market to see corrections after the index
gains for six straight days," said Zhang Qi, an analyst with
Haitong Securities.
Hong Kong shares yesterday were down sharply at the close, as
stock markets in the region tumbled on fears of a possible fallout
from housing market woes troubling the US economy.
The Hang Seng Index lost 496.21 points on yesterday's close,
finishing at 18,836.93 points. The turnover was HK$51.64
billion.
The Hong Kong stock market, hurt by the US and the mainland
markets, has fallen continuously in recent weeks, slipping back
from a high point of around 21,000 points at the start of the
year.
"We should not panic about this seemingly sharp drop. The
turnover of HK$51.64 billion is still pretty good and we haven't
seen investors withdrawing their bids in huge volumes," said Castor
Pang, a strategist at Sun Hung Kai Financial Group.
(China Daily March 15, 2007)