In a significant move aimed at revitalizing investor confidence in its second-largest equity market, China has taken the decision to lower the stamp duty on stock trades for the first time since 2008. The announcement, made by the government in an official statement on Sunday, reveals that the reduction will take effect from August 28.
Market observers have been abuzz with speculation ever since Beijing issued an uncommon pledge the previous month, signaling its intentions to “invigorate capital markets and boost investor confidence.” This bold step is anticipated to potentially trigger a swift rally in China’s substantial $9.6 trillion equity market, which remains acutely sensitive to shifts in policies that impact market liquidity.
The decision to halve the levy imposed on stock trades is poised to deliver advantageous outcomes not only for Chinese brokerages but also for quantitative hedge funds that rely on high-speed trading strategies. As concerns mount within the economy, ranging from a downturn in the property sector to trust defaults and sluggish consumption metrics, authorities have been on a mission to regain favor with investors who had turned away from the nation’s assets.
Data compiled by Bloomberg reveals an unprecedented trend: foreign investors have been net sellers of mainland China stocks for a record 13 consecutive sessions up to Wednesday. This trend underlines the urgency of restoring investor trust in the market.
Throughout 2023, the CSI 300 Index has witnessed a decline of roughly 4%, building upon annual losses from previous years. This underperformance becomes more evident when compared to a broader measure of Asian equities, lagging behind by approximately six percentage points.
Acknowledging the critical situation, authorities have called upon the country’s premier financial institutions, including pension funds and major banks, to ramp up their stock investments in a bid to provide crucial support to the market. Simultaneously, efforts have been directed at encouraging mutual fund managers to elevate purchases of their own equity funds, trimming handling fees for stock transactions, and promoting increased share buybacks by companies.
China has a history of adjusting the stamp duty on stock trading, employing this lever several times in the past to influence market behavior. Notably, in May 2007, the rate was elevated to 0.3% to cool down a market rally that was attracting more than 300,000 new investors daily. In April 2008, following a market plunge, the government swiftly reduced the levy to 0.1%, a decision that sparked a remarkable bull run the subsequent year.
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August 26th , 2023
Delino Gayweh
Serrari Financial Analyst
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