Shares open 7.98% higher on overnight tax cut
(Xinhua/Chinadaily.com.cn)
Updated: 2008-04-24 10:44
Chinese shares opened nearly 8 percent higher on Thursday morning, boosted by an overnight stock trading tax cut. The benchmark Shanghai Composite Index opened 261.54 points, or 7.98 percent higher at 3539.87 points on Thursday. The Shenzhen Component Index opened at 12787.38, 892.14 points or 8.51 percent up from the previous close. The Chinese government announced on Wednesday it was to cut the share trading stamp tax from 0.3 percent to 0.1 percent from Thursday in an effort to bolster the equities market. "The market will bottom out," said Wei Wei, an analyst at West China Securities Co. in Shanghai. "It's a clear signal from the government that it thinks of the decline as overdone." So far, measures to boost stocks have failed to stem the decline. The government said on the weekend shareholders selling more than 1 percent of a stock within a month must do so in single trades, keeping the transactions off the open market to support equity valuations. "(The tax cut) is the most effective thing the government could have done in the short term to give the market more confidence," said Michelle Qi, a portfolio manager at Bank of Communications Schroders Fund Management Co in Shanghai, which oversees $7 billion. However, Qi added,"I don't think we're going to rise above where we ended last year though because in the end, it's still about economic conditions." The Shanghai Index rose 4.15 percent to 3,278.33 on Wednesday before the tax cut announcement. Despite the rise, it had dropped 37.7 percent this year and 46 percent from its peak on October 16. China Southern Airlines Co., the nation's biggest carrier, has lost 61 percent of its value this year, the biggest decliner among the 300 stocks on the CSI index. PetroChina Co, the world's first $1 trillion company, has slumped 47 percent, falling below its November offering price in Shanghai. The government raised stamp duty to 0.3 percent on May 30, 2007, to cool a rally that was drawing more than 300,000 new investors a day. Investors' enthusiasm was stimulated by the long-expected tax cut, with gainers outnumbering losers by 785 to 2 in Shanghai and 626 to 1 in Shenzhen. Aggregate turnover boomed to 175.9 billion yuan (about $25 billion) from a daily total of 120 billion yuan on Wednesday. Real estate, construction and metal sectors led the rebound, with their share price indices jumping more than 8 percent. The Shanghai index opened 261.54 points, or 7.98 percent, higher at 3539.87 points on Thursday. The Shenzhen Component Index opened at 12787.38, 892.14 points, or 8.51 percent, up from the previous close. The stamp tax cut stemmed panic selling and would push the market back on the track of stable development, said Galaxy Securities analyst Li Feng. The Shanghai index rose 4.15 percent to 3,278.33 on Wednesday before the tax cut announcement but still 37.7 percent lower than the beginning of this year and 46 percent off its peak on October16. "The market had seen bubbles removed and was worth investing in at current price levels, while the room for future rebounds was up to macro-economic performance," said Li. Meanwhile, analysts said investors should remain cool-headed and prevent risks amid drastic fluctuation. The stamp tax cut would not fundamentally change the operation of China's stock market but only render short-term fluctuations, said Guosen Securities analyst Lin Songli. "Investors need to take a sensible attitude as the (stamp tax cut) policy was actually aimed at adjusting the psychology of investors," Lin said, warning that policy adjustment might trigger bigger rises and falls. Better regulation in other aspects, including refinancing, was needed to help China's stock market develop healthily and stably, Lin said. Analysts also blamed the release of a large amount of non-tradable shares into the market, saying the tax cut could not tackle all the current problems. China's stock market was still immature in many aspects and needed urgent improvement in transparency, efficiency, and safe operation, said an executive meeting of the State Council presided over by Premier Wen Jiabao on Wednesday. The trading tax cut followed a couple of recent supporting measures. The China Securities Regulatory Commission (CSRC) said on Sunday it would encourage block trading for bulk sale of shares freed from the lock-up period. It specified the procedures of the operation on Thursday, saying selling the formerly locked shares on the bidding market would receive real-time monitoring. Investors have long complained that the huge amount of such shares would flood the market and therefore sink share prices. When more than 1 percent of a listed firm's total shares are sold within a month, the trade should be conducted through a separate block trading system operated by the Shanghai and Shenzhen exchanges, the CSRC said. The CSRC had also punished two fund managers for insider trading. The China Securities Regulatory Commission said the fund managers, Tang Jian and Wang Limin, bought shares before their funds bought into them, selling them later at a profit when the price subsequently rose, a practice known as frontrunning. |
