China Equities Soar on Tax Reduction and Market Support Measures

In a recent statement, the China Finance Ministry declared that stamp duties on securities transactions would be halved, marking the first such move since 2008. The ministry emphasized that this action, effective immediately from Monday onwards, is intended to stimulate capital markets and instill confidence among investors.

Additionally, the China Securities Regulatory Commission disclosed its decision to decrease the minimum margin ratio for investors looking to buy securities. This ratio will now stand at 80%, down from the previous requirement of 100%. The regulatory change will become effective on September 8.

Moreover, the commission expressed its intention to slow down the pace of initial public offerings (IPOs) in response to the recent market situation. Furthermore, limits will be imposed on the sale of stocks by top shareholders if their respective companies have not been distributing sufficient dividends or if share prices fall below the IPO value.

Bloomberg data reveals that just under half of onshore firm shares are currently trading above both IPO and book value prices. As a result, both local and foreign investors have become more cautious towards China stocks in recent months.

China’s Stock Market Shows Glimmer of Hope Amidst Ongoing Challenges

China’s CSI 300 index XX:000300 made a notable gain of 1.1% on Monday, albeit lower than expected due to the recent stimulus news. Despite this, experts predict a 6.5% overall loss for August, making it the worst monthly return since October 2022.

The current stock market slump can be attributed to investors veering away from equities, primarily due to the economy’s disappointing rebound from the COVID-19 lockdown. Moreover, a significant decline in the property sector, coupled with dwindling consumer confidence, has further contributed to the market slowdown and general lack of interest in stocks.

On a more positive note, the Hang Seng HK:HSI index experienced a slight boost from China’s efforts to relax trading regulations, resulting in a 1.2% increase. However, the Hang Seng has still suffered a 9.4% loss so far in August, which would mark its worst monthly return since last October.

Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, recently highlighted concerning data showing a 6.7% decline in Chinese company profits compared to the previous year. Although better than June’s figure of 8.3%, the decline of 15.5% over the first seven months of 2023 raises concerns given the slowing economic growth, increasing deflation risks, and potential default risks faced by major Chinese companies.

Meanwhile, China Evergrande EGRNF, +900.00%, a highly indebted property developer, failed to benefit from Monday’s rally. After more than a year hiatus, its shares tumbled by a staggering 81% on the Hong Kong Exchange.

Despite these challenges, market analysts remain cautiously optimistic as they monitor ongoing developments within China’s stock market.