SHANGHAI stocks may open lower when this week's trade starts today after the central bank announced an increase in reserve ratios and China approved a major initial public offering.
But the weak market, hit by concerns of slowing corporate earnings and record oil prices, could find some relief when an expected slowdown in May's consumer price inflation figure is confirmed later this week, analysts say.
The Shanghai Composite Index fell 3.02 percent last week to 3,329.67, with A-share turnover on Friday down to its lowest since the end of 2006. The market was closed yesterday for the Dragon Boat Festival holiday.
The central bank on Saturday ordered lenders to set aside more money as reserves to curb liquidity. The reserve ratio will rise 0.5 percentage point this coming Sunday, and another 0.5 percentage point on June 25 to a record 17.5 percent.
Analysts said the harsher-than-usual raise means authorities are still worried about liquidity and inflation, but this also makes an interest-rate rise less likely in short term. The government is set to start reporting May CPI and other economic figures later this week.
The central bank usually announces reserve ratio and rate adjustments after key macroeconomic figures are reported. "It chose to announce the hike before the data announcement this time, because to announce it following improved macro data would be unacceptable," one analyst said.
The Consumer Price Index, which rose 8.5 percent in April, near the fastest pace in almost 12 years, is expected to retreat to below 8 percent in May with falling agricultural product prices.
"The May CPI figures may give the market a short-term rebound, with concern on further monetary tightening eased," said Hua Xin at Founder Securities.
Still, the big cash call from the IPO of China State Construction Engineering Corp could weigh on the sentiment. The authority approved the share sale, which could raise more than 42.6 billion yuan (US$6.2 billion) to become China's largest IPO so far this year, late last Thursday.
Oil refining giant Sinopec Corp may drop after National Development and Reform Commission Deputy Director Zhang Guobao said China won't link refined oil prices to international levels yet.