The Chinese mainland's A-share market saw its capital reserves shrink by more than 16 billion yuan (US$2.35 billion) in June due to a sluggish performance which kept investors away, a report by Shenyin Wanguo Securities Co yesterday.

The capital reserves fell to 1.75 trillion yuan by the end of June, 16 billion yuan less than a month earlier. Investors allocated fewer funds to the A-share market after the key stock index, the Shanghai Composite Index, lost nearly half its value from its October record. It plunged from 3,459.04 on June 2 to 2,736.10 on Monday, losing nearly 21 percent in the month.

With transactions also dropping in the bearish market, the commissions earned from trading tumbled 43 percent from a month ago.

So it was not surprising that many investors became reluctant to place more money in the stock market. Their enthusiasm to buy stocks or mutual funds have also dropped for three consecutive months to 16.8 percent in June, the level seen in 2006 when the market just recovered from a sluggish period in 2005.

The report predicted capital would still be tight as expectations swirled over an interest rate rise, keeping worried investors at bay.

Earlier this week, central bank Governor Zhou Xiaochuan said he could not rule out raising interest rates to stem inflation.

But the report said the pressure may ease in the fourth quarter when China's economy shows a clear pattern of development after the snowstorms in January and the Sichuan earthquake on May 12.

(Shanghai Daily July 4, 2008)