BIZCHINA / Weekly Roundup
Stamp vision
By JIN JING (China Daily)
Updated: 2007-06-04 09:31
After a series of monetary measures and repeated warnings, the central
government is seen to be showing renewed resolve to cool the overheating
stock market with fiscal measures that can have a more immediate impact.
An increase in the stamp tax from 0.1 per cent to 0.3 per cent that was
imposed last Wednesday, intended to help promote healthy growth in the
securities market, was widely taken as a sign that the central government
is serious about curbing excessive speculation by short-tem traders by
raising the transaction cost.
"What is special for this year's stock market trading is that Special
Treatment stocks or low-priced stocks performed better than
large-capitalization blue-chip companies, showing that there are lots of
speculators in the market," says Zhang Yidong, an analyst at Industrial
Securities.
According to the statistics from China Securities Regulatory Commission,
the A-share turnover ratio on the Shanghai Stock Exchange was as high as
392 percent, while that on the Shenzhen Stock exchange was 437 percent in
the first four months this year. The turnover ratio shows the frequency
of stock trading. "The high turnover rate indicates that there are many
short-term speculators in the market," says Zhang.
"The stamp tax adjustment will have the effect of forcing people to
switch their investments from the penny stocks to blue-chip stocks and
Olympic-concept stocks, such as those in the transportation and
infrastructure sector," he adds.
The Shanghai Composite Index dived 6.5 percent on Wednesday after the
Ministry of Finance announced the tripling of the stamp tax from 0.1
percent to 0.3 percent. But buying momentum appeared just after the noon
break on Thursday, pushing the main indicator up 1.4 percent to close at
4,109.65 yuan, led by banking stocks.
Large-capitalization stocks performed well even as the stock market took
a dive.
Analysts say the sudden announcement of the stamp tax, which triggered
one-day panic selling, would not have a lasting impact, as investors are
standing by and seeing what action the government may take to cool down
the market.
Song Wenguang, a private investor with more than 10 years stock trading
experience, said that the tax adjustment will make him more cautious on
the his stock investment. "I am worried about the proposed policy the
government may take to intervene the market, such as a capital gains
tax," says Song.
"I also bought some shares when the index dropped to a relatively lower
point on Wednesday, and believe the index will rise in the near term," he
adds.
"Unless the Chinese government takes continuous policy action, the recent
A-share market correction will likely to be temporary," says Huang
Yiping, head of Asia Pacific economics and market analysis at Citigroup.
"The psychological impact on investors could be larger than the actual
effect of the tax adjustment. We think the policy change may add pressure
on share prices in the near term, which could reduce the risk of a market
crash," says Shen Minggao, an economist at Citigroup.
Capital continued to flow into the stock market, even after the tax
adjustment announcement. The number of investor accounts crossed the 100
million threshold last Monday, as new accounts have reached as high as
36,000 a day.
"With the continuing large inflows of capital, the rise in the stamp tax
will not change the upward trend of the stock market," says Zhang.
But Huang notes that a potential significant correction in the stock
market may result in the withdrawal of liquidity from the stock market
into the property markets and bank deposits.
Similar actions have before been taken by the government, including in
May, 1997, when it raised the tax from 0.3 percent to 0.5 percent. At
that time, the stock index slipped as much as 500 points, or 32 percent,
in the following four months until it later rebounded.
(For more biz stories, please visit Industry Updates)
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