Shanghai stock index hits highest level in five years

Stock market more divided as blue chips win, small firms tumble

More than 700 Shanghai-listed stocks gained on Monday, sending the benchmark Shanghai index to its highest level in five years and fueling market expectations of a bull year in 2015.

The Shanghai Composite Index (SCI) closed at 3,350.52 points on the first trading day of 2015, up 3.58 percent. The Shenzhen Component Index also rose 4.59 percent to 11,520.59 points, the highest level in nearly 40 months.

China's sluggish A-share market has reversed its downward trend since the second half of 2014. The benchmark SCI surged 52.87 percent last year, allowing the A-share market to surpass Japan's stock market to become the world's second-largest in terms of market value.

"The Chinese mainland stock market continues to be active in 2015, fueling investors' expectations of another bumper year," Li Daxiao, chief economist with Shenzhen-based Yingda Securities Co, told the Global Times Monday.

Nearly 90 stocks on the two bourses jumped by the daily limit of 10 percent on Monday. Shares in the coal, oil and gas, non-ferrous metal and property sectors led the gains, with 34 coal firms, including Yanzhou Coal Mining Co and China Shenhua Energy Co and two oil giants, PetroChina and Sinopec, soaring by 10 percent.

"A raft of new policies boosted the robust performance of energy shares, but their growth momentum might not be sustained," Shen Meng, director of investment banking firm Chanson&Co, told the Global Times Monday.

The Ministry of Finance has slashed export tariffs for coal since January 1, a move to support domestic coal firms that were suffering from a slump in coal prices and industrial overcapacity.

Also starting from 2015, the MOF has raised the exemption threshold on the so-called "windfall tax" on upstream oil producers to $65 per barrel of crude oil from $55 previously, which industry analysts said could help three State-owned petrol giants reduce their tax burden by 30 to 50 billion yuan ($4.82-$8.04 billion).

However, the ChiNext Index, which tracks China's NASDAQ-style board of growth enterprises, closed 0.48 percent lower at 1,464.77 points on Monday.

"The mainland stock market has become more divided, with small-cap shares, speculative stocks and junk stocks facing growing risks of a bubble burst," Li said.

The robust performance of the mainland stock market has been mainly led by blue chips such as those in the banking and oil sectors, however, many shares in small firms have plummeted amid the bullish market.

Overseas funds have begun to flow into blue-chip shares since the launch of the Shanghai-Hong Kong Stock Connect program in mid-November, and partiality toward these blue chips is expected to continue in 2015, Shen said.

Analysts expect the mainland stock market will maintain its gains this year, despite China's economy still facing downward pressure.

China's ongoing comprehensive reforms will help boost the A-share market in 2015, Li said, citing the internationalization of the capital market and the implementation of delisting rules and new listing procedures.

Shen noted that the mainland stock market will also become more mature with further opening-up.

"The market used to be bothered by short-term speculation, but with more professional investors' participation through the Shanghai-Hong Kong Stock Connect scheme, the market can reflect the real value of listed companies," he said.