By Sue Anne Tay

The death toll from Monday’s earthquake continues to climb but the Shanghai Composite Index fell only slightly on Tuesday, closing at 1.84% lower.

Stocks traded normally after the first earthquake hit at 2:28pm on Monday, May 12. Travelling tremors that forced evacuations in several key buildings in Shanghai’s Lujiazui area were reported to have affected some fund managers and brokers. By the time the gory details of the earthquake and its consequences were fully unravelled, markets had closed for the day.

On Tuesday, markets started off shaky and continued so for the rest of the day. 66 stocks in Sichuan did not trade on the Shanghai and Shenzhen stock exchanges yesterday, citing problems in communications in the head offices. This marked the largest trading suspension in the bourses' 18-year history. About half the companies were reported to resume trading today. Meanwhile, steel, pharmaceutical, cement and rice shares rose on expectations that rescue and reconstruction efforts would spur demand.

Nonetheless, analysts have reiterated that the earthquake is unlikely to have a lasting and deleterious effect on the economy. As Zhang Gang, an analyst at Central China Securities puts it, “This will negatively affect sentiment at domestic bourses, rather than their fundamentals.”

If anything, it is inflation that weighs on the economy and the consensus is that the earthquakes’ impact would add to near-term inflationary pressures. Sichuan is a key rice and pork producing area, and food prices have been the key driver of recent inflation to 11-year highs. The infrastrural damage that has disrupted energy and raw-materials output may apply greater pressure to constrained supplies. Only two days ago, the National Statistics Bureau announced that April’s Consumer Price Index (CPI) rose 8.5%, higher than March’s 8.3%.

Insurance companies may be the worst hit as far as we know. China Life, the country’s largest insurer, said it expects claims for the Sichuan earthquake to “far exceed the claims” for freak snowstorms that hit southern China early this year”. As a result of January/February’s snowstorms, insurance companies paid claims of up to RMB1.6 billion (USD224 million).

UPDATE, 5:30pm: The markets closed 2.73% higher than the previous day, a signal that market fears over the quake have been temporarily eased. Banks have also donated millions for disaster relief and reconstruction. [Updated graph after the jump]