Beijing signals it has seen enough stock-market misery
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Times Staff Writer Don Lee filed this report from Shanghai on Thursday:
Is China’s great bear market over?
That’s what investors are wondering after the central government on Wednesday cut its stock transaction tax to 0.1% from 0.3%. The long-awaited move rolls back the so-called stamp tax to the rate it was a year earlier, when Beijing raised the surcharge to cool what was then a heady market.
Wednesday’s reversal was aimed at arresting a stock market in freefall: The Shanghai market’s benchmark composite index had plunged nearly 50% from its peak in October to last Friday’s closing level.
The tax rollback was officially announced after markets closed Wednesday, but investors apparently got wind of the impending action earlier in the day. Although the tax wasn’t onerous in the market’s heyday last year, the move to pare it helped boost depressed investor psychology. The Shanghai index jumped 4.2% on Wednesday. And today the index was up 7.3% in mid-day trading, to about 3,517.
The tax cut came on the heels of a separate government measure on Sunday to limit sales of large blocks of shares to off-market transactions. Taken together, the two steps reflect Beijing’s concern that the risk of social turmoil was growing because of the market’s plunge.
Millions of ordinary Chinese jumped into the stock market in the last couple of years with wide-eye expectations of raking in big profits. But since fall Chinese stocks have been tumbling, a reflection of rising inflation, a tightening of credit and, most significantly, a flood of once-non-tradable shares into the market after a ban on those sales was voided by government.
Beijing has always had a heavy hand in China’s stock markets. And the latest one-two punch is likely to boost investors’ confidence, creating what some believe could be a nice government-planned run-up leading to the Olympics in August.
‘I believe this was a signal given by the government that the market should not drop below 3,000,’ said Kevin Dai, 27, a Shanghai investor. The Shanghai index had briefly dipped below 3,000 on Tuesday -- from a record high of 6,092 in mid-October -- before closing up 1% that day.
Dai says he won’t be rushing to plow more money into stocks just yet. ‘I want to wait and see,’ said the clerk at a trading company, who has lost about $43,000 in recent months, leaving him with about $85,000 in his stock portfolio.
Posted April 23, 2008