Mainland stocks may fall today on mild profit taking as investors take the increase in banks' reserve requirement ratio, announced yesterday, as an excuse to cash in.
'The impact will be limited as 10.5 per cent is still much lower than the 20 per cent of Hong Kong commercial banks, so the money creation ability of mainland banks remains strong,' said Castor Pang, a strategist at Sun Hung Kai Financial.
'With A shares having reached record highs in recent days, investors may take this opportunity to take profit first. But the correction will not be deep.'
The central bank has ordered commercial banks to set aside more money as reserves for the sixth time in 10 months by raising the reserve ratio to 10.5 per cent from 10 per cent, with effect from Monday.
The move was aimed at further controlling liquidity and curbing lending, the People's Bank of China said on its website.
The Shanghai Composite Index extended its four-day winning streak yesterday, rising 0.84 per cent to a record 3,319.14 points. The Shenzhen Composite Index gained 1.41 per cent to a new high of 876.838 points.
The Shanghai index has soared almost 20 per cent since the market fell 8.8 per cent on February 27 when rumours that a capital gains tax might be imposed on stock trading to discourage investors from buying A shares sparked the sharpest fall in a decade.