The Shanghai Stock Market hit a new high yesterday, indicating a continuous bullish market for 2007.

The benchmark Shanghai Composite Index rose 1.81 percent to close at 2479.73 points after hitting a record 2505.7 points during the day. The total transaction volume of both A and B shares reached 47.81 billion yuan (US$5.97 billion).

"The expected introduction of index futures at the beginning of next year and the corporate income tax unification are two factors that stimulating market growth," said Zhang Yidong, an analyst from Industrial Securities.

Zhang said the introduction of index futures will attract flows of capital from institutional investors who will bid up before buying short in the futures market.

According to a recent draft of the corporate income tax law, income tax will be unified at 25 percent, which is lower than the current 33 percent for most domestic and foreign-invested companies.

"The tax rate cut will increase profits for companies in the finance, food and steel industries," Zhang said.

Large capitalization blue-chip companies such as Baotou Steel, Sinopec and Industrial and Commercial Bank of China led the increase yesterday.

Yesterday, the composite index in Shanghai dropped quickly after reaching its record high. It soon picked up again later on.

"China Life's shares sale and the sudden surge of large capitalization stocks today caused a temporary lack of capital in the stock market," Zhang said.

In 2007, the stock market's composite index is expected to surpass 3,000 points, and the average increase of large capitalization banks will be more than 25 percent, according to a report from Guotai Asset Management.

Zhang said "market excessive liquidity" and "pressure for renminbi appreciation" are two factors that will push market growth in coming years.

The strong trend of the equity market and the IPOs of large-capitalization companies attracted inflows of capital from deposits. Bank deposits decreased 7.6 billion yuan (US$950 million) in October, according to statistics from the People's Bank of China.

The large amount of funds issued scale and the increasing QFII numbers also led to excessive market liquidity, Zhang said.

"The expected appreciation of the renminbi will benefit industries like finance and real estate," said Liu Shiqiang, an analyst from Guotai Asset Management.

The company's share restructuring is almost complete, except for 74 companies at the end of this year. There are 842 companies listed on the Shanghai Stock Exchange, and total market share has reached 6.636 trillion yuan (US$829.5 billion).

When large capitalization blue-chip companies like China Mobile, China Life and Petro China return from the H-share market in 2007, it will benefit the future listed company's profit growth.

The Shenzhen Component Index yesterday closed at 6356.46 points a drop of 43.16 points from the opening price.

(China Daily December 27, 2006)