By Li Zengxin (chinadaily.com.cn)
Updated: 2008-02-26 16:53

Shanghai Composite Index
Source: sina.com.cn

After hitting a seven-month low yesterday, Chinese stocks opened higher after rumors that several large enterprises will soon be issuing additional shares subsided. After a few setbacks, heavyweight financial shares kept the Shanghai index from dropping to below yesterday's close, while stocks in Shenzhen were not so lucky.

The Shanghai Composite Index jumped 200 points from 4,302.74 at the opening, on an announcement by the securities regulator warning listed companies against excessive share issues. But the momentum did not last long, as prices started to slide before the noon break. Fortunately, financial institutions returned to lift it up to close 45.65 points or 1.09 percent up at 4,238.18.

Lacking huge index-driving stocks, the Shenzhen Component Index failed to reclaim its lost ground. It opened at 15,888.10 and closed at 15,328.418, 158.25 points or 1.02 percent lower than yesterday.

Combined turnover of the two exchanges continued to shrink, to 135.51 billion yuan ($18.95 billion), reflecting a lusterless market with uncertainties ahead.

Shenzhen Component Index
Source: sina.com.cn

Rumors about large companies, including China Unicom, China Life and Daqin Rail, considering refinancing plans pressed the market to a seven-month low yesterday. Watching their share prices plunge in panic selling, China Life, the country's largest insurer, and China Unicom, the second-largest mobile phone operator, refuted rumors about refinancing plans involving billions of additional shares.

Today China Life regained 4.97 percent to 37.2 yuan after plummeting below its first-day price on the secondary-market yesterday. China Unicom failed to make a similar come-back today, dropping 4.21 percent to 10.46 yuan at the close.

The China Securities Regulatory Commission (CSRC) warned listed companies to desist from excessively large new share issues that could undermine the stock market. A CSRC statement urged shareholders to use their influence over listed companies to block excessive fund-raising plans.

However, the move to boost investor confidence and the latest approval of three new stock-oriented funds that may bring another 20 billion yuan to the market did not outweigh the mounting pressures .

Aside from the rumors, the market faces capital dilution from additional share offers and the floating of de-frozen stocks. So far this year, some 43 firms have released refinancing plans, aiming to raise 260 billion yuan, compared with 394 billion raised by 190 firms for the whole of last year.

Ping An Insurance announced last month that it plans to raise up to 150 billion yuan, prompting other firms to follow suit, including Shanghai Pudong Development Bank which is targeting 40 billion yuan with 1 billion shares.

In order to reassure the investors, Ping An said in a statement that it will issue the additional shares and bonds prudently at a "proper" time according to "proper" procedures. Its share price closed 4.07 percent up today after continuous slides on previous trading days.

Pudong gained 3.82 percent to 40.49 yuan today. All banks, insurance companies, and securities brokers were up.

Also this year, 130 billion shares formerly under trading limits will become tradable. When floated on the boards, the shares are likely to absorb as much as 3 trillion yuan, a capital dilution prospect that has recently lingered and kept the market from advancing, analysts said.