Earnings Drop to Hit Market

Shanghai shares are likely to drop this week on concerns of declining corporate earnings in the fourth quarter, analysts said.

"Many institutions predicted fourth quarter corporate earnings will drop sharply, so they will hold a cautious attitude toward the market and take profit when a rebound occurs," Yi Xiaobin, an analyst at Galaxy Securities Co, said.

Although the central government has issued stimulus policies to boost the market or the economy quite frequently, Yi said that these measures require time to take effect.

The People's Bank of China, the country's central bank, announced last week a slash in interest rates by an unprecedented 1.08 percentage points to overcome a global economic slowdown whose influence may hover over the domestic economy. The rate cut will take effect from Friday. The one-year key lending rate will drop to 5.58 percent while the deposit rate will fall to 2.52 percent.

Yi forecast the index to range between 1,750 and 1,950 points this week and suggested investors pick up on real estate and low-priced stocks.

The Shanghai Composite Index dropped 5 percent to 1,871.16 points last week. The index rebounded on Thursday following the announcement of the rate cut, but retreated later on profit taking.

The gloomy outlook for heavyweight stocks, especially financial firms, was what curbed the index from rising, said Wang Shuai, a Stockfly Securities Co analyst.

''Shareholders of previously non-tradable shares also sold their shares quickly with the recovery of the market because from November 1 to November 20, a total of 400 million non-tradable shares were sold," Wang said.

He forecast the same range for the key index this week as Yi.