Cures for China’s Feverish Stock Market – Li Qing, Ye Weiqiang and Feng Yuqing

As housekeepers, migrant workers and even monks join investors flooding China’s markets, regulators and experts who fear a bubble burst are seeking cures for stock fever. From Caijing.com.cn:

China’s finance ministry struck at midnight May 29, while most traders were fast asleep, with an announcement that sent share prices tumbling on the Shanghai and Shenzhen stock exchanges the next day.

Effective immediately, the ministry said, the government would triple the stamp duty imposed on each share of class A and class B stock. The unexpected decision raised the duty to 0.3 percent.

As the sun rose the next morning, and news of the overnight decision spread, share prices that had steadily climbed for months started to tailspin – fast. That day alone the Shanghai Composite Index lost 7.33 percent, while the Shenzhen index closed off 7.65 percent. Losses stretched into the following week before the markets rebounded .

The sudden selloff was a dramatic reversal for the mainland exchanges, where Chinese company share prices had risen rapidly for two years without a single, significant correction.

The Shanghai index had rocketed from the depths of a six-year low in early June 2005 — minus 998 points — to a dramatic high of 4335 just before the stamp duty increase. No previous government measure had slowed the bull market – neither interest rate hikes, nor increases in the deposit reserve ratio, nor even troubling disclosures of insider trading by the China Securities Regulatory Commission (CSRC) . [Full Text]

June 18, 2007 12:35 PM
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Categories: Economy