China's stock market soared to an all-time high on the last trading day of 2006 as a flood of fresh investment funds boosted the benchmark index up 4.2 percent and brought its total gain for the year to 127 percent.
The Shanghai Composite Index closed at 2,675.474 points on Friday with the second-biggest daily percentage rise this year. Turnover in Shanghai A shares was 58.75 billion yuan (US$7.5 billion). This is the second-highest level this year.
Experts identify a number of factors contributing to a bullish year, which marked the end of a four-year slump and launched China into the ranks of some of the best performing capital markets in the world. The factors cited include continued economic growth, the success of recent market reforms and massive fund inflows from listings by some of China's flagship firms.
Though the index is not predicted to rise as spectacularly next year, the huge amount of new funds raised for investment in recent months -- many of which haven't yet entered the market -- mean the bull run is unlikely to end soon, analysts say.
The news that the Chinese Government is expected to pass the unification of a corporate tax law in 2007 is among the favorable factors triggering a strong market in December -- a month that has seen a 27 percent growth.
"Banks will benefit the most from the new tax policy," said She Minhua, an analyst with the Beijing-based CITIC China Securities.
Bank shares such as the Industrial and Commercial Bank of China and Bank of China increased 65 percent and 50 percent respectively in December.
Corporate profit growth, benefiting from the possible new tax policy and new accounting standards starting in 2007, is forecast to be around 25 percent this year and roughly the same next year.
And the listing of several flagship companies is planned in early 2007. They include China Life Insurance in January and Bank of Communications and Ping An Insurance in subsequent months. These offerings are expected to trigger investor interest.
China Merchants Bank Co., the nation's third-biggest publicly traded lender, rose 5.1 percent to 16.36 yuan (US$2.1) on Friday. This pushed the stock's advance to 170 percent this year.
China Minsheng Banking Corp, the country's first privately controlled lender, added 4 percent to close at 10.20 yuan (US$1.3). Its shares have more than tripled this year.
China Petroleum & Chemical Corp, Asia's biggest oil refiner and also known as Sinopec, climbed 70 percent since October 10 when its parent gave investors 2.8 shares for every 10 held as it converted its non-tradable shares. Sinopec gained 1.1 percent to 9.12 yuan (US$1.16) on Friday extending its gain this year to 96 percent.
(China Daily December 30, 2006)