SCI may fall below 3,000

Because investment income is an important component of earnings for many listed companies, there is a very real risk that we will see a downward spiral where lower than expected earnings takes the index below 3,000. Since a stronger RMB and potential monetary tighening must also negatively affect earnings and investor sentiment, a more significant correction may well be in the cards. This is from AP:

The benchmark Shanghai Composite Index lost 98.85 points, or 2.4 percent, to close at 3,971.26, its lowest level since July 19, when it settled at 3,912.94. The Shenzhen Composite Index fell 3.3 percent to 1,248.19.





The decline below the psychological level of 4,000 points prompted waves of panic selling, analysts said. They said the market would likely look to Wall Street for cues in coming days.





Apart from worries over what the authorities will do to combat inflation, which is at its highest level in a dozen years, investors are jittery over an expected slowdown in average corporate profit growth.





"If profitability comes in as we expect, the Shanghai Composite may stabilize around 3800," said Li Nian, a strategist at Shenyin Wanguo Securities. "But the index can head to below 3000 if there's a further downward adjustment in corporate earnings forecasts."





Li forecasts that corporate profit growth will fall to a still robust 30 percent, but that's well below the average of about 50 percent last year.