The Mainland stock market has now entered the busy advance notice period for 2007 earnings announcements. Excellent performances have brought A-shares out from the deep market adjustment of October 2007 and may well push the major stock indexes to a new high.
The A-share market in Mainland China has been moving in the opposite direction of the American stock market. In the first week of 2008, while the New York Stock Exchange (NYSE) and Nasdaq Stock Exchange (NSE), due to a series of bad news regarding the American economy, swallowed back half of their 2007 index rise, the Chinese stock market was back on the bull track.
Currently, 40% of listed companies have, one after another, published their advance notice of earning announcements and over 600 listed companies have forecasted on 2007 annual earnings. The average rate of earning increase has surpassed 210%. Furthermore, companies with "good news" of turning losses into profits or an expected earning increase, account for 75% of those 600 companies. 221 companies or 36% of these companies expect an increase in earnings
Companies that recently published their advance notice of earnings announcements have also seen their share prices performing very well. After revealing their formal annual reports, those stocks which issue shares as dividend will be favored by the market. Recalling the market trend of Jan 2007, before 24th January, during this period of early report, two thirds of trading days ended up on the index; The Shanghai Consolidated Index (SCI) jumped from 2675.47 points to the then highest of 2994.28 points, up by 11.92%. After seven trading days in 2008, only one ended with decrease on index and the SCI was up by 3.57%.
The first 2007 annual report will be published on the 15th of Jan 2008. Following the current timetable, the Shanghai Stock Exchange (SSH) will announce 150 annual reports before March and the Shenzhen Stock Exchange (SZSE) will announce 61 reports. As usual, the most intensive annual reports period will take place in April. Over the first four month of 2007, Shanghai Consolidated Index (SCI) was up by 43.57% and Shenzhen Index up by 63.47%. The elevating power of these reports can clearly be seen in the stock market. Going back to 2006, during the first four months, the Shanghai Consolidated Index (SCI) increased by 24.09% and the Shenzhen Index by 34.38%. Even in 2005�/span>s bear market, with the support of an expected rise on profits, the Shenzhen Index climbed by 2.97% during the first four months.
Although both SCI and Shenzhen Indexes are likely to rise with above par earnings performances as fuel, the rate of increase should not be as quick as in 2007. In 2008, both regulators and the type of investors who make investments based on company value hope the year to be a year of the slow-moving bull not a running bull. Looking from the perspective of macroeconomic policy, since the central bank has made it clear that it would use a tight monetary policy in 2008, and preventing the economy from overheating and easing inflation are the top priorities of 2008 macroeconomic adjustment, the stock market should not rise as quickly as the previous year.
In the last quarter of 2007, the A-share market underwent the biggest adjustment since the bull market started. The market dropped by 22% from the 6124 points high on the 16th of October. Along with the two times of price bottoms in November and December, a three-month middle-term adjustment has just finished. Prices of some stocks have not only recovered their earlier decrease, but also reached a new high. Investors should be in good spirits to celebrate the Spring Festival, the traditional Chinese New Year.
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