China’s Stock Market Drops Over 65 Percent in 2008

January 4, 2009 Updated: January 8, 2009
China's A-Share Market marks the worst-ever 65 percent annual drop in 2008. (China Photos/Getty Images)
China's A-Share Market marks the worst-ever 65 percent annual drop in 2008. (China Photos/Getty Images)

After posting losses for the eight straight trading days, China's A-Share Market plunged on the final trading day of 2008. China's benchmark Shanghai Composite Index (SCI) plunged 65 percent in 2008, which is the largest-ever annual drop. Influenced by the financial crisis, Hong Kong's Hang Seng Index also dropped 48 percent this year, which is its worst performance since 1974.

The SCI opened at 1,834.95 points and closed at 1,820.81 points, posting a high of 1,844.37 and a low of 1,814.75. The SCI fell 0.66 percent leading to a turnover of 34.41 billion Yuan (approx. US$5.04 billion). As for the Shenzhen Composite Index, it opened at 6,585.51 points and closed at 6,485.51 points, losing 1.11 percent with a trading volume of 20.921 billion Yuan (approx. $3.07 billion).

The Shanghai Composite Index dropped 65.39 percent for the whole year, with the highest point at 5,522.78 and the lowest at 1,664.93, and the significant fall has almost compensated for the entire surges in 2006 and 2007. In the past 20 years or so, the Shanghai Composite Index only experienced twice such a serious annual drop of over 20 percent—that is, 22.3 percent in 1994, and 20.62 percent in 2001. In addition, the Shenzhen Composite Index also suffered a yearly decline of 63.36 percent in 2008.

Some analysts have commented that with the gloomy economic outlook for 2009 and the severity of the U.S. economic recession, China must make it through this transitional period of excess production capacity and structural adjustments in the coming years. In addition, before the transition period, China's production capacity and consumption figures will be impacted by various international market factors.

Analysts are expecting another steep plunge during the first half of 2009 which will lead to difficulties for China to maintain its economic growth rate of 8 percent this year. Under such circumstances, it is impossible for China's stock market to experience a sharp rebound, and at most there may be some investment opportunities amongst the economic stimulation packages. It is suggested that investors should reduce their holdings of large and small non-tradable shares once the stock market rebounds as the restrictions on non-tradable shares are expected to stay the same in 2009.

The Hong Kong Hang Seng Index Marked the Worst Drop in History.

Despite Hong Kong's Hang Seng Index surging 1.07 percent to close at 14,387 points on December 31, 2008, the index shrank by nearly 50 percent in 2008, which is its worst drop in history.
As the global financial crisis has resulted in a recession for the world's economy, the Hang Seng Index's bull trend over the past five years has finally come to an end. It closed 48 percent below its 2008 starting point, the second-largest annual drop since the 60 percent plummet in 1974 triggered by the global oil crisis.

However, as a result of a variety of loose financial and monetary policies implemented by some of the world's biggest economies, the Hang Seng Index rebounded 3.6 percent in December alone. It is the highest monthly increase since April, 2008.

The Hang Seng Index closed at 14,387.48 points, 151.98 points higher than its previous trading on Tuesday. Meanwhile, the Hang Seng China Enterprises Index surged 1.36 percent to close at 7,891.8 points.

Read original article in Chinese.