China’s Stock Market Soars Following Unveiling of Stimulus Measures
n a recent development, Chinese equities experienced a notable surge as authorities introduced a series of measures aimed at revitalizing investor interest. Among the key changes are a reduction in the stamp duty imposed on stock trades and a deliberate deceleration in the pace of initial public offerings (IPOs).
The CSI 300 Index, encompassing mainland stocks, witnessed a substantial early Monday surge of up to 5.5%, marking the most significant upswing in three years. Simultaneously, several brokerage stocks approached their upper limits in gains. The Hang Seng China Enterprises Index also saw a notable rise of 3.8%, while the Hang Seng Index itself recorded an increase of over 3%.
The Ministry of Finance revealed that, effective August 28, the levy associated with stock trades would be lowered from 0.1% to 0.05%. This decision is framed as an effort to “revitalize capital markets and instill confidence among investors.” Importantly, this move marks the first reduction in the levy since 2008.
In a parallel move, the China Securities Regulatory Commission articulated its intention to curtail the pace of IPOs, citing prevailing “market conditions.” While specifics regarding the implementation of this slowdown remain undisclosed, regulatory authorities have also imposed limitations on share sales by principal stakeholders in companies whose stock prices have fallen below IPO levels or net asset thresholds. Furthermore, they have taken measures to decrease margin ratios for leveraged trades. These actions were largely unexpected by investors. Experts from China International Capital Corp., including Pu Han, conveyed their assessment in a note, describing the measures as surpassing expectations in terms of scale, impact, and speed. They anticipate that the growing efficacy of these policy tools will enhance market confidence, consequently reinforcing a positive market sentiment.
Market participants have voiced optimism about the potential positive impact of the newly introduced measures on market performance, although concerns persist regarding the sustainability of the effect over time. These initiatives are strategically deployed by authorities to allay apprehensions stemming from challenges in the real estate sector and subdued consumer spending.
Data compiled by Bloomberg demonstrated that foreign investors have maintained a net selling position in mainland Chinese stocks for an unprecedented stretch of 13 consecutive sessions up to Wednesday. This underscores the prevailing unease among international investors.
The most recent reduction in the stamp duty parallels a similar move executed in April 2008, when China decreased the levy to 0.1% as a response to a market slump, subsequently igniting a bullish phase in the following year. Conversely, in May 2007, the duty was raised to 0.3% to temper a rally characterized by an influx of more than 300,000 new investors daily. Notably, the session immediately following the 2008 reduction saw the Shanghai Composite index surge by 9.3%.
Analysts at Huatai Securities estimate that the cumulative impact of the multifaceted changes could introduce around 750 billion yuan (equivalent to $103 billion) of fresh capital into the market annually. Their analysis underscores that the newly imposed restrictions on share sales could effectively immobilize approximately 250 billion yuan of funds from liquidation, thereby offering a substantial boost to market liquidity. These insights were communicated by analysts, including Wang Yi.