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When a multitude of listed companies see their share prices falling below offering prices on the stock market, this usually marks a deep recession. And with shares plunging in China's mainland stock market, will investors find themselves in a bear market?
China's benchmark stock index, the Shanghai Composite plunged about 27 percent in the first half of the year, while the Shenzhen Component Index slumped over 30 percent. The yuan-dominated A-share market diminished by about 5.9 trillion yuan at the closing price on June 30th.
Yin Guohong, Director of Research Division, Dongxing Securities said "When a multitude of listed companies see their share prices falling below issue prices or share value falling below net asset value, it usually marks a dip. But this time is different from what happened before. When the market is in a deep recession, or an IPO is priced too high, the market will see share prices falling below issue price. I think this dip is caused by overvalued issue prices."
Historically in China, share prices have twice fallen below issue price. That was in 2005 and 2008.
On June 6th, 2005, the Shanghai index dipped to its lowest point. Over 40 percent of A-share listed companies saw their share prices fall below offering prices. In 2008, that proportion was down to about 23 percent. This year, it's even lower at 7.2 percent. Compared with the previous two occasions, the number of listed companies and their proportion in the whole market are both lower. This means a less severe impact.
Huang Xiangbin, Senior Analyst of Cinda Securities said "The current status is just market fluctuation. We shouldn't jump to a bear market conclusion."
Analysts say that in the long term, frequent fluctuations will accompany the market as it recovers from the deep recession of 2008.