source: bloomberg
By Zhang Shidong and Alexander Ragir
May 30 (Bloomberg) -- China's stocks slid the most in three months after the government tripled a tax on securities transactions to cool a rally that's drawing more than 300,000 new investors a day.
The CSI 300 Index fell 268.41, or 6.4 percent, to 3899.88 as of the 11:30 a.m. midday break in Shanghai. It's almost doubled this year, helping drive the value of the nation's stocks to $2.47 trillion. The number of accounts at brokerages this week topped 100 million for the first time, according to China Securities Depository & Clearing Corp.
``At some point this market will start to turn and be in a large fall and a lot of people are going to be hurt,'' said Fraser Howie, co-author of the book `Privatizing China: The Stock Markets and Their Role in Corporate Reform.' ``The ones who got in the latest, the smaller retail investors, will be hurt first.''
Stamp duty on share trades has been increased to 0.3 percent, effective today, ``to promote the healthy development of the securities market,'' the finance ministry said on its Web site. The central bank this month raised interest rates for the second time this year, encouraging people to save rather than invest in stocks, and brokerages were ordered to make investors sign a declaration acknowledging risks when opening accounts.
Shares of Citic Securities Co., the nation's largest publicly traded brokerage, and Hong Yuan Securities Co., the first publicly traded brokerage, were among about 30 stocks included in the CSI 300 to slide by the maximum 10 percent daily limit.
`Real' Action
``The government is doing something real to curb speculation and prevent the market from overheating,'' said Li Xuewen, who manages about $284 million at Invesco Great Wall Fund Management Co. in Shenzhen. ``If the market doesn't cool down, more measures to stem the gains will probably follow.''
Investors on May 28 opened 455,111 accounts to trade mainland shares and mutual funds, making the tally exceed 100 million for the first time, according to the China Securities Depository & Clearing Corp. Some 22 million accounts have been opened at brokerages so far this year, four times the amount in all of 2006, according to the clearing house.
The surge in investment has made Chinese shares the most expensive in the Asia-Pacific region, with the CSI 300 Index trading at 48 times reported earnings, according to data compiled by Bloomberg data. That's more than double valuations in Japan and India, the region's next most expensive markets.
Global Sell-Off
Central bank officials, former U.S. Federal Reserve Chairman Alan Greenspan and Li Ka-shing, Asia's richest man, have all warned of a looming correction this month. The CSI 300, which tracks yuan-denominated A shares, yesterday rallied to a new high, its 11th record this month.
China has been trying to curb speculation in the market for months. A government crackdown on investments with borrowed money on Feb. 27 led to a 9.2 percent drop in the CSI 300 Index, the biggest decline since it was introduced in April 2005. The Shanghai Composite tumbled the most in a decade and the rout sparked a global sell-off that wiped out more than $3.2 trillion of stock market value.
China started to levy stamp duty in 1990, and initially set the rate at 0.6 percent. This is the eighth time the government has adjusted the rate of the tax.
The last time the government raised the tax was on May 10, 1997, when it was lifted to 0.5 percent from 0.3 percent. The Shanghai Composite Index rose 2.3 percent after the announcement.
``The stamp tax is the latest gesture by the Chinese government to warn investors,'' said Phil Chen, who manages $154 million at Grand Cathay Securities Investment Trust Co. in Taipei. ``The trouble is, Chinese investors probably won't care if a few breadcrumbs are dropped in the transaction as they have such extraordinary returns on their investments.''
To contact the reporters on this story: Zhang Shidong in Shanghai at at szhang5@bloomberg.net ; Alexander Ragir in New York at aragir@bloomberg.net .
Last Updated: May 29, 2007 23:56 EDT-.- chao turbanz.. zZZzzzz
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