CHINA'S stocks may drop a further 21 percent after the Shanghai benchmark index slumped from its October record, Citigroup Inc said, citing the effect of lower share values on corporate profits.
The central government will probably resist calls for measures to bolster the equity market because valuations have yet to reach "distress levels," Lan Xue, the head of China research at Citigroup, the largest United States bank by assets, said in a note dated Tuesday.
The Shanghai A-Share Index may drop as low as 3,000 and reach a maximum 4,000, she said, without specifying a time period. Tuesday's close of 3,790.69 was 41 percent below the October 16 record. The index yesterday fell 5.5 percent to 3,581.82.
China's stock market is the second-worst performer in the Asia-Pacific region after Vietnam this year amid concern the government's measures to tame an 11-year-high inflation will slow companies' earnings growth. The People's Bank of China asked commercial lenders to set aside more reserves twice this year after it raised interest rates six times in 2007, Bloomberg News said.