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China has taken a significant step to boost investor confidence in its second-largest equity market by lowering the stamp duty on stock trades for the first time since 2008. The government’s recent statement announced a 50% reduction in the levy charged on stock trades, starting from August 28. This move follows a rare commitment from Beijing last month to rejuvenate capital markets and enhance investor confidence, fueling expectations of such a reduction.
This decision holds the potential to immediately stimulate China’s substantial $9.6 trillion equity market, which is particularly responsive to shifts in policies impacting market liquidity. The lowered duty is poised to benefit not only Chinese brokerages but also quantitative hedge funds that rely on rapid trading strategies.
In light of concerning indicators in the economy, such as a property market downturn, trust defaults, and weak consumption metrics, authorities are striving to attract investors who have grown wary of the country’s assets. Data from Bloomberg reveals that foreign investors have been consistently selling mainland China stocks for a record 13 straight sessions until Wednesday. The CSI 300 Index’s performance has been lackluster in 2023, showing a 4% decline following consecutive annual losses. This places it six percentage points behind a broader measure of Asian equities.
To reinforce the market, authorities have taken multiple measures. This includes urging major financial institutions like pension funds and large banks to increase their stock investments. Moreover, mutual fund managers have received guidance to intensify purchases of their own equity funds. In addition, handling fees on stock transactions have been reduced, and companies are being encouraged to step up their share buyback programs.
China has previously adjusted the stamp duty on stock trading on several occasions. In a bid to temper a rapid rally in May 2007, the rate was raised to 0.3%, which was seeing over 300,000 new investors entering daily. Following a market downturn in April 2008, the government lowered the levy to 0.1%, triggering a subsequent bull run the following year.
