China halves stamp duty on stock trades to boost flagging market
China has halved the stamp duty on stock trading in an effort to boost the struggling market, but analysts predict that the impact will only be short-term.
Posted 8/27/2023, 9:32:00 AM
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Chinese authorities have introduced new measures to boost investor confidence in the stock market by reducing trading costs, relaxing rules on share buybacks, and considering extended trading hours and a cut in stamp duty, following recent declines in both the stock and bond markets. These declines have been influenced by China's deteriorating economic outlook, including deflation, weak consumer spending on manufactured goods, rising youth unemployment, and concerns over the property market.
Hong Kong Chief Executive John Lee has established a task force to study the possibility of reducing stamp duty on stocks in order to strengthen the local economy, as the move comes after China halved its stock stamp duty in an effort to boost investor confidence.
China has cut the stamp duty on stock trades and plans to slow the pace of initial public offerings in an effort to boost investor confidence and stimulate the capital markets.
China has cut a tax on stock trading for the first time since 2008 in an effort to restore investor confidence, but concerns about the real estate crisis and sluggish growth prospects continue to weigh on the market.
China's stamp duty and margin cuts revive confidence in the Hong Kong stock market, leading to a rally in stocks such as HKEX, Alibaba, and BYD, while China Evergrande continues to struggle.
China has announced measures to support the market, including reducing stamp duty on stock trading and approving the launch of retail funds, but the response from investors has been muted.
Hong Kong brokers and analysts are calling for a reduction in stamp duty and relaxed listing rules to revive the sluggish stock market, following a decline in turnover after the government increased the stamp duty in August 2021; they suggest that these measures would attract more investors and new listings.
Nomura Holdings believes that China's recent market-boosting measures, including a cut in stamp duty, will not be enough to sustain a rebound in stocks or bolster economic growth without additional policy support for the real economy.
Hong Kong has established a 13-member task force to review the stock market's liquidity and improve its competitiveness, including examining the listing regime, market structure, and trading mechanism; however, there was no announcement regarding a reduction in stamp duty on stock trading.
China's government implemented various measures to boost its stock market, including a cut in stamp duty and restrictions on selling shares, but the impact has been limited as the CDI 300 index closed up just 1.2% after initially opening higher, and troubled property developer Evergrande experienced an 87% drop in stock value; foreign investors are pulling their money out of China and want to see more significant policy measures from the government.
Financial Secretary Paul Chan Mo-po has cautioned against lowering Hong Kong's stamp duty on securities trading as a means to revive the sluggish stock market, stating that it may not resolve the underlying structural issues but could weaken investor confidence; he also plans to visit the US and Europe to promote Hong Kong as an international financial center.
Chinese stocks have passed the worst of the selling pressure and are still attractive to investors due to their cheap valuation and potential for growth, according to CLSA. However, Beijing needs to address concerns and risks in the economy. The MSCI China Index has fallen this year, but a pause in the Federal Reserve's tightening policy is expected to reverse market pessimism.
China's macroeconomic challenges, including deflationary pressures, yuan depreciation, and a struggling property sector, could have broader implications beyond its borders, impacting global metal exporters, trade deals, and global inflation; however, investing in China's stocks may offer compelling valuations despite the current downturn.
Chinese stocks defy regional declines as tech stocks rise, while the 10-year Treasury yield slightly decreases from a 16-year high; US futures tick higher following a 1.6% slide in the S&P 500; bond yields rise in Australia and New Zealand after positive US labor market data; and India's sovereign debt is set to be included in JPMorgan's benchmark emerging-markets index.