China's main stock index surged 1.49 percent on Monday, boosted to a fresh record high by a few large-caps such as Industrial & Commercial Bank of China (ICBC), but most of the market fell on profit-taking.
Losing Shanghai stocks outnumbered gainers by 507 to 363, and some sectors such as real estate and steel fell sharply, suggesting the market could be in for a moderate pull-back after big gains in recent weeks, analysts said.
"Only several heavily weighted shares are holding up the index - property shares have started correcting and steel shares followed. So 4,800 seems to be resistance for the index on its way to 5,000 points," said Xu Yinhui, analyst at Guotai Junan Securities. The Shanghai Composite Index ended up 1.49 percent at 4,820.064 points, but it was well off an intra-day record high of 4,872.548 hit in the afternoon.
Turnover in Shanghai A shares rose to a fairly active 160.7 billion yuan ($21.2 billion) from Friday's 145.7 billion. The market climbed at the opening after the official Xinhua news agency, in a commentary run on the front pages of major business newspapers, said the market was developing in a healthy and stable manner and in line with the economy.
The commentary was taken as a signal that authorities were pleased by the market's bull run, which has pushed up the index 80 percent so far this year, and were unlikely to take further major action to cool trading any time soon.
"This really helped sentiment - it gave people more confidence to hold shares, particularly large-caps, for the long term," said Zhang Qi, analyst at Haitong Securities.
But the commentary was not enough to boost the overall market given the recent speed of its gains, and since many investors expect 5,000 points to be a strong barrier for the index.
Though 5,000 should be reached sometime in coming months, and the huge amount of new money available for investment by mutual funds and individuals means any pull-back may not last long, a drop near the 4,500-point level in the next week or two is possible, some traders said.
News on Monday that consumer price inflation surged to 5.6 percent in July, the highest rate for over a decade, from 4.4 percent in June, had almost no impact as the July figure had been leaked to the market early last week.
But analysts said that the inflation figure could be followed by an interest rate hike in coming weeks and more monetary tightening late this year. Although tightening over the past year has had almost no negative impact on surging corporate profits, further tightening could start to bite.
DBS Bank, for example, predicts one more official lending rate hike this year but at least two 0.27 percentage point hikes in deposit rates - an imbalance that could worsen banks' profit margins and slow their spectacular first-half earnings growth.
ICBC, China's biggest bank, led the market up on Monday. It gained 6.13 percent to 7.10 yuan, bringing its gains over the past four trading days to 22 percent.
Many local analysts say ICBC is still cheap in comparison with other domestic banking stocks, and some local investment Web sites are talking of an 8 yuan target for the stock.
Bank of China (BoC) also boosted the market index, gaining 8.61 percent to 6.31 yuan, while Huaxia Bank soared 8.34 percent to 16.36 yuan. Among other outperforming blue chips were China Life Insurance and oil refiner Sinopec. Electric power companies stayed strong as they are expected to post good interim earnings reports in the coming week. Huaneng Power International, due to report on Wednesday, rose 5.62 percent to 13.73 yuan.
Such rises expanded the premium of A shares over Hong Kong-listed H shares to 74 percent on Monday from 72 percent on Friday, reaching the highest level since the index measuring premiums was launched in early July. Among other big gainers on Monday, Shandong Expressway jumped its 10 percent daily limit to 9.43 yuan after saying net profit in the first half-year rose 21 percent.
Three new listings in Shenzhen soared by margins that were large even by the Chinese market's high standards. Beijing Shiji Information Technology shot up to 83.31 yuan from its IPO price of 21.50 yuan, GRG Banking Equipment soared to 78.28 yuan from 16.88 yuan, and Beijing BDStar Navigation jumped to 58.55 yuan from 12.18 yuan. Among weak property shares, industry leader Vanke dropped 1.84 percent to 33.13 yuan.
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