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Shanghai Markets Lose More Than 6 Percent On Tripled Stamp Tax

Wednesday, 30 May 2007 20:54:04 GMT  |  Richard Lee, Currency Analyst

Shanghai Markets Lose More Than 6 Percent On Tripled Stamp Tax

China’s stocks took a turn for the worse in the overnight following the announcement that the government will increase the stamp tax by triple the rate.  Investors, a little skittish, following the lead of the tumble back on February 27^th, pared back on positioning as it became apparent that Chinese policy makers are clawing at any and every potential method of tightening speculative liquidity in the market.  The CSI 300 index dropped 6.8 percent in Shanghai, with regional markets following suit.  However, interestingly enough, there is some resilience that can be seen as the fall was never really comparable to the 9 percent February decline.  It seems that this time around investors are seeing continued interest in the market, overall.  The notion helped to minimize the fall as plenty of cash is likely to funnel its way through the system, with or without tightening measures.  Subsequently, the yuan continued to advance on speculation that further tightening measures will be forthcoming in the short term.  The Chinese yuan advanced to 7.6471 in the overnight.

 

China Growth Forecast Rises, Moody Looks To Raise Debt Rating

Although focus has been heightened on a speculative bubble in the world’s fastest growing economy, it seems that a popular rating agency is seeing plenty of value in China.  Today, it was announced that Moody’s rating agency is heavily considering upgrading both Hong Kong and China issued debt.  Incidentally, the decision was announced following the World Bank’s upgraded growth forecast for the country.  Citing a well supported export market and solid financials, the investor rating agency is looking to upgrade the current A2 long term foreign currency rating.  The decision, should it come to fruition, would likely exacerbate the current level of foreign investment, and subsequently demand for the yuan.  As a result, government officials are likely to turn to further alternative tools, as in the stamp tax, in tightening monetary controls in the short term.

 

Greenspan Comments On China Stock “Contraction”

Additionally helping to plug the equity share bleeding seen in the overnight were comments by former Federal Reserve Chairman Alan Greenspan.  Acknowledging that Chinese equity markets will likely undertake a “dramatic correction”, Greenspan noted that there should be no contagion fear in the international community.  On the side of rational, Greenspan alluded to the limited number of participants and the short grasp Chinese stock markets have on the international forum.  To date, there is less than 10 percent of the population actively involved in the stock market with foreigners being excluded from owning rather large blocks of companies.  As a result, including economist conclusion, the stock market will not widely reflect the growth that is expected from the economy and will likely run a path of its own.  The comments may calm fears in Shanghai later tonight as US equities quickly recovered in the New York afternoon.

 

Stock Markets Roiled In The Overnight Session

Regional equity markets were also negatively effected by Shanghai Plunge.  Benchmark indexes including the Nikkei 225 dropped 0.48 percent with most notable declines in Hong Kong and Singapore.  Both stock markets ended lower on the session, down 0.86 and 0.45 percent respectively.  In Hong Kong, the Hang Seng tumbled 175.83 points to close the session at 20,293.76 as property stocks lost heavily on the session.  Shares of Cheung Kong, which dropped 1.9 percent, led decliners along with China related stocks in China Mobile.  The Straits Times Index fell in line, dropping 15.95 points to finish the day at 3,511.13.

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