Tax cut boosts China stocks
After months of stock market declines that saw Shanghai’s composite index fall nearly 50% in half a year, China’s government has stepped in and given investors a boost.
Officials cut the stock transaction tax to 0.1% from 0.3%, a long-awaited move that rolls back the so-called stamp tax to the rate it was a year ago, when Beijing raised it to cool what was then a heady market. The cut came on the heels of a separate government measure to limit sales of large blocks of shares to off-market transactions.
On Thursday, the Shanghai index surged 9.3%, the biggest daily increase in seven years, to close at 3,583. That’s still a long way down from a record high of 6,092 in mid-October, but now some investors and analysts think China’s great bear market is over. The index was up 0.3% at midday today.
The Shenzhen composite index, associated with China’s smaller stock exchange, also rose sharply Thursday, up 8.7% to close at 1,044.
In recent months, the Shanghai and Shenzhen exchanges had fallen more steeply than other emerging markets, weighed down by concerns over soaring inflation, tightened credit, the U.S. sub-prime mess and, most significant, a flood of once-nontradable shares into the market after a ban on those sales was voided by the government.
Many Chinese investors had expected officials to intervene earlier.
“The government should have saved the market because it is mainly small and individual investors who suffered. We don’t have the information that many institutional investors have,” said Liu Rongsheng, 62, a stationery store owner who was following the trading action at Guo Yuan Securities in central Shanghai.
Like others in the trading hall, Liu was all smiles Thursday.
“I am optimistic about the market,” he said.
Zhang Qi, an analyst at Haitong Securities Co., said it was too early to say whether the bear market was over. Compared with those of other emerging Asian markets, stocks in China are still relatively expensive, trading at about 25 times earnings.
But some analysts said the premium was justified because China’s economy was growing faster than others and that the steep decline in recent months had made Chinese shares more attractive.
Valuations, however, don’t matter much for many Chinese investors. Before things turned sour late last year, millions of ordinary Chinese jumped into the market, many buying shares almost blindly with expectations of raking in big profits. If the market starts to heat up again, it may not be easy to control the speculative fever that has resulted in dramatic booms and busts in China.
Zhang suggested it would take a long time before the market became more stable.
Listed companies “should release more information, be more transparent and try to realize sustained growth,” he said. “They should try to attract investors through company performance and things like dividends, not just by announcing big projects whenever they have new offerings. Only through that way, investors will focus on the value of the company.”
But it will be hard to avoid the cycles because of the “casino mentality of Chinese buyers of equities” and “self-interest on the part of government,” said Donald Straszheim, a China specialist at Roth Capital Partners in Los Angeles. State-owned companies dominate China’s stock market, with about two-thirds of the value of all shares in the hands of government.
A big challenge for Beijing is to let the market operate on its own but not allow excesses that could hurt the economic security of common people -- and threaten social stability.
Last May, when officials suddenly raised the stock-trading tax, sending the Shanghai market tumbling by 15% over several days, angry investors chided the government for meddling and breaking up the party.
On Thursday, investors cheered officials for rolling back the tax.
“Government should have done this long ago,” said a retired Shanghai food plant worker who gave his last name as Huang. “Of course I’m very happy today,” said the gray-haired man, who began playing the stock market in May and has lost about 40% of his initial $13,000 investment. “I wish the government would save the market so I could earn my money back.”
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Cao Jun in The Times’ Shanghai bureau contributed to this report.
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