China stocks surge after new measures to boost markets

HONG KONG – Chinese stocks jumped after the authorities announced a slew of measures to woo back investors, including

a reduction of the stamp duty

on stock trades and a slower pace of initial public offerings (IPOs).  

The CSI 300 Index of mainland shares rallied by as much as 5.5 per cent early on Monday – the most in three years – with some brokerage stocks gaining up to the limit. The Hang Seng China Enterprises Index rose 3.8 per cent, while the Hang Seng Index also advanced more than 3 per cent. 

The levy on stock trades will drop from 0.1 per cent to 0.05 per cent as of Monday, said the Ministry of Finance in a statement on Sunday, in a move to “invigorate capital markets and boost investor confidence”. The reduction is the first since 2008. 

The China Securities Regulatory Commission also said it will slow the pace of IPOs, citing “recent market conditions”, without giving details on how it would do so. Regulators also restricted share sales by top stakeholders at firms whose stock prices have fallen below IPO levels or net asset levels, and lowered margin ratios for leveraged trades, moves that investors said were a surprise.

“The scale, force and speed of the measures all beat expectations,” China International Capital Corp analysts including Pu Han wrote in a note. “The increasing force of the policy tools will lift market confidence, amplifying the positive signal for the market.” 

Traders said the measures announced in the latest round may have a shot at lifting markets, though questions remain over how long it will last. The authorities have been trying to dispel worries about the economy triggered by a slumping property market and weak consumer spending. Foreign investors sold mainland China stocks on a net basis for 13 consecutive sessions through Wednesday, the longest stretch ever, data compiled by Bloomberg shows. 

China last cut the stamp duty in April 2008, reducing it to 0.1 per cent to support the market after a plunge, spurring a bull run the following year. In May 2007, it raised the rate to 0.3 per cent to cool a rally that was drawing more than 300,000 new investors a day. On the session following the 2008 cut, the Shanghai Composite rallied 9.3 per cent. 

The raft of changes this time is expected to bring the equivalent of 750 billion yuan (S$141 billion) of new funds into the market per year, according to estimates from Huatai Securities. “New restrictions on share sales, in effect, keep around 250 billion yuan of funds from selling, and bring the strongest benefit to liquidity” among the measures, wrote Huatai Securities analysts including Mr Wang Yi.  

Market response 

The market response to stimulus measures has become increasingly muted in the latest rout, underscoring deep pessimism among investors. The Friday afternoon unveiling of property stimulus measures sparked an initial flurry of buying, with China’s benchmark CSI 300 Index reversing losses. But the gauge resumed declines after about 10 minutes before ending the day down 0.4 per cent.

The authorities in August urged pension funds, large banks and other big domestic financial institutions to increase stock investments to support the market.

Regulators have also cut handling fees on stock transactions, prodded mutual fund managers to increase purchases of their own equity funds, and encouraged companies to do more share buybacks. However, such guidance in past weeks was not enough to lift risk appetite, with the Shanghai Composite falling towards oversold levels. 

Mr Neo Wang, Evercore ISI’s New York-based managing director for China Research, said: “We expect a rally this week, maybe to a less degree than those after China lowered stamp duty in 2008.”

He added that a turnaround in the A-share market would not happen unless Beijing adopts more “bazooka” measures, such as the four trillion yuan stimulus package it rolled out in 2008. BLOOMBERG