(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. The yuan also strengthened.
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The CSI 300 index of mainland stocks rose as much as 5.5% early Monday before easing, with some brokerage stocks capping higher. The Hang Seng Index of Chinese companies rose 4.1%, while the Hang Seng Index advanced 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 also restricted share sales by major stakeholders in companies whose share prices fell below IPO levels or net asset levels and lowered margin ratios for leveraged trades, moves investors said came as a surprise. The regulator said it would slow down the pace of initial public offerings, citing “recent market conditions,” without providing details on how to do so.
“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 that the measures announced in the last round may have a role in lifting the markets, although questions remain about how long they will last in the absence of concrete steps to revive the real economy. Major indices already pared their opening gains on Monday, while foreign investors once again sold domestic stocks on a net basis, confirming concern that China’s economic slowdown is due to hard-to-fix structural problems.
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 recent weeks. On Friday, the revelations of real estate stimulus measures sparked an initial wave of buying, as China’s benchmark CSI 300 index reversed losses. However, the gauge resumed declines about 10 minutes later and ended the day down 0.4%.
The Hong Kong-listed national equity index is down 8% so far in August, and remains one of the worst performers in the world among more than 90 equity measures tracked by Bloomberg.
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.
“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.
The yield on 10-year Chinese government bonds rose as much as five basis points on Monday – the biggest rise since late July. The yuan advanced as much as 0.3% at home and abroad.
The People’s Bank of China set its daily reference rate for the yuan at its strongest level since mid-August, continuing the trend of stronger-than-expected fixations for the managed currency. It also injected the largest amount of short-term cash into the financial system since February, a measure likely aimed at managing liquidity needs at the end of the month.
“The stamp duty cut, for the first time since 2008, shows the urgency of policymakers to change market sentiment, but last time it was followed by massive stimulus, which may not be the case this time,” said Marvin Chen, an analyst at Bloomberg. Intelligence. “The key to a sustainable reclassification continues to be economic growth momentum, and more political support will be needed.”
–With assistance from Iris Ouyang, Zhou Lin, Jacob Guo, and Janet Baskin.
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