HONG KONG - All major Asian stock markets
except Bangkok fell on Wednesday after a slump in
China's shares triggered by the tripling of the
stamp tax on securities transactions.
But
analysts believe the impact of the increase will
be limited, causing a correction in the short term
as the Chinese government does not want to see a
big plunge ahead of the Communist Party's 17th
National Congress this autumn.
The
Ministry of Finance announced on Tuesday night
that it was
raising the stamp tax to 0.3%
from 0.1%, the latest in a series of official
steps - including an interest-rate hike this month
- to cool the market.
The benchmark
Shanghai Composite Index, which tracks both the
yuan-denominated A shares and hard-currency B
shares traded on the Shanghai Stock Exchange,
plunged to close at 4,053 points, down 282 points
or 6.5% from 4,335 on Tuesday. The component of
the smaller Shenzhen bourse dropped 6.16% to close
at 12,627. The Shanghai Composite Index has soared
more than 60% this year on top of a 130% rally in
2006.
The Finance Ministry said the stamp
duty was increased "to promote the healthy
development of the securities market". This move
comes after China announced on May 18 increases of
benchmark interest rates and the bank
deposit-reserve ratio, as well as widening the
floating range of the yuan against the US dollar.
All of the moves are designed to curb excessive
liquidity and cool the overheated economy - and
take some of the frenzy out of the markets.
Central bank governor Zhou Xiaochuan and
the former chairman of the US Federal Reserve,
Alan Greenspan, are among many who have expressed
concerns about the Chinese markets and warned of a
bubble.
Commenting on the stamp-duty
increase, Cai Zhizhou, a researcher with Peking
University, said: "It is a drastic correction and
aims for a more rational sentiment among
investors."
Some analysts speculate that
the government will increase the duty further if
the market ignores the latest action. Or else the
government might consider introducing a
capital-gains tax.
The last time China
raised the stamp duty, in May 1997, it resulted in
a 30% drop in the A-share market over the
following four months.
China imposed a six
per thousand stamp tax on stock transactions after
its markets were created in 1990. The rate was
subsequently adjusted several times, with its
latest change in 2005 when it was halved from 0.2%
to 0.1% in a bid to boost the then-depressed
market.
Driven by huge transaction
volumes, stamp revenue more than doubled in 2006
to 17.95 billion yuan (US$2.34 billion) and soared
516% to 12.1 billion yuan in the first quarter of
2007.
Analysts say the effects of the
increase could be more psychological as the
government uses such "mild" measure to deliver the
message that it will not stand by and watch the
markets become too "crazy".
"In a bullish
market, 0.3% is not much of a cost for investors.
In fact, by taking the move, the government is
telling people that it is doing something real to
curb speculation, and if the markets ignore the
message it is likely to take more measures," a
broker in Shenzhen said.
Dr Jun Ma, chief
economist, Greater China, with Deutsche Bank Hong
Kong, said: "In our view, this is the most serious
effort from the government attempting to deflate
the A-share market bubble since the current bull
cycle started last year. The rationale for raising
the stamp duty, rather than imposing a
capital-gains tax, is that the stamp duty is a
more flexible tool [historically it ranged between
0.1% and 0.6%] which could be used a few times,
while an immediate imposition of a 20%
capital-gains tax is generally believed as too
harsh at this stage."
Taiwan experienced
an 80% market correction in 1990 after the
introduction of its capital-gains tax.
As
for the impact of the increase in stamp duty, Jun
Ma commented on the last time it was raised in
1997. "We think the A-share market will correct
but the correction should be less drastic, as
domestic liquidity is much stronger ... and the
government is also concerned about market
overshooting on the downside before the [17th]
Party Congress in autumn."
Hence, in his
view, if the A-share market correction is limited
to 15-20%, "this is what the government would like
to see and would help reduce the need for tougher
policy actions". Indeed, the government would be
under pressure to come to the rescue if the
correction were too steep, such as falling by
40-50% in a short period.
However, if the
market brushes off the rise and continues to
advance at an unacceptable pace (say 20% per
month), the government will likely further
increase the stamp duty, and the possibility of a
capital-gains tax cannot be ruled out, Ma said.
As for the H-share market, it tends to
move in the same direction as A shares, but the
magnitude of H-share correction should be milder,
given its more reasonable valuations, Ma said.
John Ng is a freelance
journalist based in Hong Kong.
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