The winning streak has reached seven sessions for the China stock market, which has gathered more than 210 points or 10 percent in the process. The Shanghai Composite Index is now comfortably above support at 2,300 points, although investors are bracing for a modest reversal at the opening of trade on Wednesday.
The global forecast for the Asian markets calls for a correction to the downside in the form of profit taking as many of the regional bourses are riding moderate winning streaks and have posted sizeable gains in recent weeks. The financials in particular have risen sharply in the last week and could be ripe for some selling pressure. The European markets ended the trading day mixed, while the U.S. markets all finished lower - and the Asian bourses are tipped to follow suit.
The SCI finished modestly higher on Tuesday, boosted by gains among the pharmaceutical and property sectors.
For the day, the index added 12.94 points or 0.56 percent to close at 2,338.42 after trading between 2,327.43 and 2,369.45 for a combined turnover of 228.29 billion yuan. The Shenzhen Component Index rose 69.09 points or 0.78 percent to finish at 8,954.84. Gainers outnumbered losses by 506 to 349 in Shanghai and 443 to 280 in Shenzhen.
Among the gainers, Hainan Pearl River Holdings soared by the daily limit of 10 percent, while Shanghai Nine Dragon rose 7.58 percent, Poly Real Estate Group was up 1.06 percent and Topfund Pharmaceutical added 6.71 percent.
The lead from Wall Street has cooled as stocks moved back to the downside going into the close of trading on Tuesday after failing to sustain an afternoon recovery attempt. The major averages all ended the day firmly in negative territory, partly offsetting the standout gains posted in the previous session. While profit taking contributed to some weakness in the markets, selling pressure remained relatively subdued, helping the major averages to hold onto the bulk of Monday's gains.
For much of the session, traders were keeping a close eye on Capitol Hill, with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner testifying before the House Financial Services Committee. During his testimony, Geithner said the near-collapse of AIG (AIG) highlights broad failures of the U.S. financial system, and he pledged to work on improving the regulatory structure in order to prevent another similar situation.
I share the anger and frustration of the American people, not just about the compensation practices at AIG and in other parts of our financial system, but that our system permitted a scale of risk-taking that has caused grave damage to the fortunes of all Americans, Geithner said.
Bernanke added that the bonuses paid to employees of AIG were highly inappropriate. At the same time, Bernanke outlined the reasoning behind the government's repeated interventions to prop up AIG despite severe mismanagement within the embattled insurance giant. The Fed Chairman noted that AIG must scrupulously avoid any excessive and unwarranted compensation.
We have pressed AIG to ensure that all compensation decisions are covered by robust corporate governance, including internal review, review by the Compensation Committee of the Board of Directors, and consultations with outside experts, Bernanke said.
However, the attacks on AIG have pushed other financial groups to work to return government funds as soon as possible. According to the Wall Street Journal, Goldman Sachs (GS) may sell its stake in the Industrial and Commercial Bank of China to help it repay the $10 billion it received under the TARP.
The major averages pulled back to new lows for the session in late-day trading, although they ended the session just off their worst levels. The Dow closed down 115.65 points or 1.5 percent at 7,660.21, the Nasdaq closed down 37.34 points or 2.4 percent at 1,518.43 and the S&P 500 closed down 16.58 points or 2 percent at 806.34.
In economic news, China repeated its call for reform of the global monetary system. In a statement posted on the Chinese central bank website both in English and Chinese, the central bank chief Zhou Xiaochuan said the outbreak of the global financial crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system.
According to Zhou, an international reserve currency is required, which is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies. He called for special attention in giving Special Drawing Rights a greater role, while stating that SDR could act as a super-sovereign currency.
In corporate news, Bank of China Hong Kong (BOC Hong Kong) saw net profit in 2008 fall 78.4 percent, the company said on Tuesday, standing at 3.34 billion Hong Kong dollars. Earnings per share were 0.3162 HK dollars, down 78.4 percent, resulting in a total dividend of 0.438 HK dollars per share. The company registered net operating income before impairment allowances of 25.52 billion Hong Kong dollars, while operating profit before impairment allowances dropped by 14.0 percent to 16.75 billion Hong Kong dollars.
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