(Bloomberg) — Chinese stocks jumped after authorities announced a series of measures to lure investors back, including lowering stamp duty on stock trading and slowing the pace of initial public offerings.
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The CSI 300 index of mainland stocks rose as much as 5.5% early Monday, the biggest rise in three years, with some brokerage stocks hitting the limit. The Hang Seng Index of Chinese companies rose by 3.8%, while the Hang Seng Index also advanced by more than 3%.
The Ministry of Finance said in a statement on Sunday that the tax imposed on stock trading will be reduced from 0.1% to 0.05% as of August 28, in a move aimed at “revitalizing capital markets and enhancing investor confidence.” This reduction is the first since 2008.
The China Securities Regulatory Commission has also stated that it will slow down the pace of initial public offerings, citing “recent market conditions,” without providing details on how to do so. Regulators also restricted share sales by major stakeholders in companies whose share prices fell below initial public offering or net asset levels and lowered margin ratios for leveraged trades, moves investors said came as a surprise.
“The scale, strength and speed of the actions all exceeded expectations,” CIC analysts including Bo Han wrote in a note. “The increased power of policy tools will raise market confidence, adding to the positive signal for the market.”
Traders said the measures announced in the latest round could have a role in lifting the markets, although questions remain about how long they will last. The authorities are trying to allay concerns about the economy stemming from a sluggish real estate market and weak consumer spending. Data compiled by Bloomberg showed that foreign investors sold mainland China stocks on a net basis for 13 consecutive sessions through Wednesday, the longest period ever.
The last time China cut the stamp duty was in April 2008, when it lowered it to 0.1% to support the market after the downturn, which led to higher prices the following year. The previous year, in May 2007, he raised the interest rate to 0.3% to smooth out a rally that was attracting more than 300,000 new investors daily. In the session after the downgrade in 2008, the Shanghai Composite Index rose 9.3%.
The set of changes this time is expected to bring the equivalent of 750 billion yuan ($103 billion) of new money into the market annually, according to estimates by Huatai Securities. “The new restrictions on stock sales actually prevent about 250 billion yuan of funds from being sold, and bring the strongest liquidity benefit” among the measures, analysts including Wang Yi wrote.
The market’s response to stimulus measures has become increasingly weak in the latest wave, underscoring the deep pessimism among investors. The revelation of real estate stimulus measures on Friday afternoon sparked an initial wave of buying, as China’s benchmark CSI 300 index reversed losses. But the gauge resumed its declines about 10 minutes later before ending the day down 0.4%.
This month, the authorities urged pension funds, big banks and other major local financial institutions to increase their equity investments to support the market.
Regulators have also lowered handling fees on stock transactions, urged mutual fund managers to increase purchases of their stock funds, and encouraged companies to do more share buybacks. However, these past weeks’ guidance was not enough to raise risk appetite, with the Shanghai Composite Index slipping towards oversold levels.
“We expect a rise this week, perhaps to a lesser extent than that since China cut stamp duty in 2008,” said Niu Wang, managing director of New York-based Evercore ISI for China research. Wang added that the transformation of the A-tier stock market will not happen unless Beijing adopts more “bazooka” measures, such as the 4 trillion yuan stimulus package it introduced in 2008.
–With assistance from Jacob Gou and Janet Baskin.
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