Stocks in mainland China experienced a rise on Monday following a significant move by the government. In an effort to rejuvenate its struggling capital markets, the government reduced a tax on trading and announced intentions to implement additional measures.
This strategic maneuver aims to counteract the decline in Chinese stock prices observed throughout the year. As economic conditions worsened and substantial surges occurred in other markets, investors chose to divest their shares. Before the market opened on Monday, China’s key CSI 300 Index had experienced a drop of approximately 4.2% for the year.
Both the CSI 300 Index and the Shanghai Composite Index saw gains of about 1.1%, though these numbers were slightly lower than the substantial increases observed earlier in the day. In premarket trading, both indexes had surged by more than 5%. Hong Kong’s Hang Seng Index, which includes shares of numerous Chinese companies, mirrored this pattern, closing with a 1% gain after relinquishing some of its initial advances.
Nonetheless, these measures have not completely addressed the concerns of investors. Jason Lui, the head of Asia-Pacific equity and derivative strategy for global markets at BNP Paribas, highlighted that investors are still seeking more concrete actions from the government to stimulate the economy. According to Lui, the modifications might not persuade bearish investors to buy shares if they remain skeptical about China’s economic recovery, regardless of these technical modifications.
- Advertisement -
Over the weekend, China’s Ministry of Finance disclosed plans to halve the stamp duty on securities transactions, effective from Monday. This reduction, down to 0.05%, intends to encourage trading activity and bolster overall confidence. Significantly, this marks China’s first reduction in stamp duty since 2008. The expense associated with stamp duty is a considerable burden for stock traders in China, and this cut is anticipated to lower the trading cost of A-shares by approximately 35% to 40%, as projected by Citi analysts. However, historical data suggests that the market impact of such cuts in stamp duty tends to peak within 15 days and then diminish over six months.
Simultaneously, China’s securities regulator expressed intentions to restrict new listings, a move aimed at balancing supply and demand and allowing for more margin lending. Furthermore, the regulator will prevent controlling shareholders from selling stock in listed companies that haven’t distributed dividends in the last three years or are trading below their initial public offering prices or net asset values.
China’s stock market has encountered challenges this year due to a struggling economy and a declining property sector. Foreign investors have been selling Chinese shares, resulting in net outflows from domestic Chinese stocks by foreign institutional investors through a prominent stock trading link. This trend has amounted to $10.2 billion in August alone, based on Wind data.
In fact, foreign investors have been net sellers of Chinese domestic stocks for 13 consecutive days, marking the longest period of selling since November 2015, during the recovery from a significant market crash.
China’s latest endeavors to stimulate its stock market align with a statement from late July by the Politburo, the highest decision-making body of the Communist Party. This statement emphasized the need to bolster the capital market and elevate investor confidence. Prior to the recent changes, the country’s securities regulator had primarily pursued more modest strategies, including contemplating extended trading hours and encouraging listed companies to enhance returns to shareholders.
- Advertisement -
Additionally, Hong Kong’s Chief Executive, John Lee, announced on Sunday that the government was contemplating the establishment of a task force aimed at enhancing stock market liquidity. Further details regarding this task force will be shared by the financial secretary later in the week. Earlier this month, Hong Kong’s benchmark Hang Seng Index officially entered bear-market territory.
In a separate development, trading for shares of China Evergrande Group, a distressed property developer, resumed in Hong Kong after a 17-month suspension. However, these shares closed down by 79%. Despite posting a net loss of $4.5 billion for the first half of the year, an improvement from the same period last year, Evergrande has been moving forward with restructuring its foreign bonds, filing for chapter 15 bankruptcy in New York.
Furthermore, Hong Kong-listed shares of electric vehicle manufacturer XPeng recorded an 11% increase after the company’s announcement of its acquisition of a smart auto development business from ride-hailing giant Didi Global for $744 million.
