Stamp duty reduction leads to moderate equities rally at China’s A-share market
Consistent policy supports expected to accelerate investor confidence
Published: Aug 28, 2023 07:30 PM
File photo shows the exterior view of Shanghai Stock Exchange at Pudong New Area in Shanghai, east China. (Xinhua)

File photo shows the exterior view of Shanghai Stock Exchange at Pudong New Area in Shanghai, east China. (Xinhua)

Major stock indices in China closed higher on Monday, after the country announced plans to cut the stamp duty on stocks trading by half, the first reduction in 15 years. Other policy adjustments were also announced on Sunday to invigorate the capital market and boost investor confidence.

Analysts and traders said that the stamp duty reduction will help boost market performance and economic recovery as the intensity, scope and speed of growth-reinforcing policies exceed expectations.

The Shanghai Composite Index opened 5.06 percent higher and closed 1.13 percent higher at 3,098.64 points on Monday. The Shenzhen Component Index opened 5.77 percent higher and closed 1.01 percent higher at 10,233.15, and the ChiNext index opened 6.96 percent higher and closed 0.96 percent higher.

The prices of more than 3,600 stocks soared on Monday. The turnover of the Shanghai and Shenzhen stock markets exceeded 1 trillion yuan ($137.1 billion) again for the first time since August 4. 

The real estate sector remained strong throughout the day, with 10 stocks up by the daily limit of 10 percent at the close.

"When A-share market performs well, shares of real estate companies often surge in prices as they have been undervalued and depressed," Yan Yuejin, research director at Shanghai-based E-house China R&D Institute, told the Global Times on Monday.

There is no shortage of capital in the capital market now. What is lacking is confidence, and it is important to allow funds to enter the market with more confidence, especially long-term investors, a board member of a Shanghai-listed pharmaceutical company told the Global Times on condition of anonymity.

"In the short term, the halving of the stamp tax will help reduce investors' costs and accelerate the capital market," the person said.

There are more than 220 million individual investors in China's stock market, accounting for 99.76 percent of the total, statistics from domestic financial service provider iFinD showed.

China's stamp tax revenue reached 128 billion yuan in the first seven months of 2023, according to data from the Ministry of Finance.

After halving the stamp duty, the country is expected to yield 120-130 billion yuan to the market each year, said Jiang Yifan, an investment consultant at Guotai Junan Securities.

"Whether the stock market will maintain the rising trend will depend on overall economic growth in the third quarter and the second half of the year," the board member said.

Following the reduction of stamp duty, the China Securities Regulatory Commission announced three new policy adjustments on Sunday, including optimization of the IPO  process and refinancing supervision, as well as reduction in the margin financing ratio, in a bid to stabilize market expectations.

The Sunday stamp duty cu was the seventh since the introduction of the share trading stamp tax in 1990.  Previous cuts boosted the A-share market.

On September 18, 2008, China canceled the stamp duty on stock purchases while the tax on share selling remained unchanged at 0.1 percent. The decision led to a 9.45 percent rise in the Shanghai Composite Index in the next trading session. 

Another stamp tax cut, from 0.3 percent to 0.1 percent, was on April 24, 2008, which triggered a 9.29 percent rise in the Shanghai Composite Index in the next trading session, according to iFinD.

The stamp duty cuts in 2008 spurred a bull run in 2009.

In 2005, after the stamp duty was halved to 0.1 percent, A-shares ushered in a three-year bull market, and the Shanghai Composite Index hit 6,124 points in October 2007, the highest point for the index.

The board member noted that the market nowadays is much bigger than that in 2008, so the records are harder to break.