By Reuters

China’s stock market rose 0.52 per cent to a record high close on Thursday, boosted by strong corporate earnings for the first half of the year.

But trading turnover was moderate and the benchmark index came well off highs hit earlier in the day, as many investors remained wary of pushing prices up sharply because of concern about high valuations and government policy.

The Shanghai Composite Index ended at 4,346.458 points, exceeding its previous all-time closing high of 4,334.924, hit on May 29. During the day it rose as high as 4,371.512 points, a fresh intraday record.

Gaining stocks outnumbered losers by 727 to 141. But turnover in Shanghai A shares totalled a moderate 130.8bn yuan ($17.3bn), well below daily levels around 200bn yuan during rallies in May and June.

Thursday’s close left the index up 11 per cent over the past five trading days and up 62 per cent since the start of this year.

This year’s bull run has sparked concern among Chinese authorities that stocks might be forming an unsustainable and dangerous bubble. After May’s record high was hit, the government hiked the stock trading tax to cool speculation, causing shares to plunge.

But better-than-expected corporate profits announced in recent days have reignited the bull run.

The official China Securities Journal said the 80 listed firms which had released first-half earnings by Tuesday reported a leap in combined net profit of 82 per cent. In addition, banks have released strong preliminary estimates for earnings.

Since the strongest companies often report earnings early in the season, the 82 per cent figure is not expected to apply to all 1,400-plus listed companies. But analysts have been raising their growth forecasts for the market’s combined earnings this year to above 30 per cent from previous estimates of around 25 per cent.

Some analysts said the moderate turnover showed the market’s current rally above 4,000 points was less speculative, and therefore more sustainable, than previous surges.

”People may be wary of the current quick rise since there was a similar move in May. But turnover is much lighter now and investors are more rational in buying,” said Zhang Qi, analyst at Haitong Securities.

”Stocks with good profits in the first half of the year will continue to do well in the medium term,” he added.

Some traders are predicting a rise to at least 4,500 points in coming weeks. But a rapid climb above that level could prompt further official action to cool the market, many believe.

Other risks for the market include further monetary tightening, as inflation shows no clear sign of peaking, and a heavy supply of new shares in coming months as top Chinese companies list in Shanghai.

Many energy and industrial stocks were firm on Thursday, with oil refining giant Sinopec up 0.57 per cent at 14.08 yuan.

Haitong Securities, which has just obtained a backdoor listing by merging with Shanghai Urban Agro-Business Co., jumped its 10 per cent daily limit to 52.11 yuan after saying first-half net profit soared more than nine-fold.

But most financial stocks were weak, with Ping An Insurance sliding 1.46 per cent to 81.02 yuan.

In another sign of concern about high stock valuations in Shanghai, the A shares of China Southern Airlines rose just 0.82 per cent to 12.29 yuan after the airline said it expected to return to profit for the first half of 2007.

Its Hong Kong-listed H shares performed much more strongly, rising 4.86 per cent to HK$6.69, while its New York-listed shares soared 11.48 per cent on Wednesday.

Copyright Fund China 2009.

You Might Like: