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Stocks down another 1.71% pending voting results
By Li Zengxin (chinadaily.com.cn)
Updated: 2007-06-29 11:47

If the interest rate tax is suspended, the reverse of the after-tax rate is 1/3.06%, or 33; and if the interest rate tax is cut in half, the reverse of the after-tax rate is 1/2.754%, or 36. Both of the multipliers are smaller than 41, meaning less shares are worth of investing in because share prices higher than 33 times or 36 times are less profitable than depositing the same amount of money in banks.

But analysts believe the interest tax slash won't immediately change the money outflow, and in the meantime, if China's inflation keeps at 3 percent growth within this year, the role of the slash will be limited to stop capital inflowing to the stock market, according an analyst at Guotai Junan Securities.

"Chinese residents are able to bear risks and willing to invest money for higher returns, so the bull stock market is their first choice of course," said Huang Changzhong, a researcher with China Securities Research Co Ltd.

Analysts believe the major factor dragging the stocks down recently, was the possible issuance of a special treasury bond, rather than the interest tax slash. The national legislature debated on Wednesday a draft bill to authorize the Ministry of Finance to sell 1.55 trillion yuan of special treasure bonds to fund the country's new State investment agency.

At the same time of generating higher returns from foreign exchange reserves investment, the new bond will help drain the excessive liquidity in the home market and improve macro-economic control. Many people believed that excessive liquidity is one of the driving forces behind both the country's ongoing economic acceleration and an unprecedented stock boom.

In the meantime, the mainland and Hong Kong exchanges have started to address the price difference problem of A- and H-shares of a same company listed on both markets. The Hong Kong Hang Seng Index Service Limited (HSI Service) signed a contract yesterday with the Shanghai Stock Exchange Infonet Ltd (SSE Infonet) to compile A-share related indices with data from the Shanghai Stock Exchange.

According to a source with HSI Service, the company has finished the development of the A-share related services and products. The A plus H index and relevant products will be introduced to the public on Friday after authorization from the Shanghai Stock Exchange. However, whether HSI Service will be allowed to design derivatives like the index futures remains unknown.


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