China's Stocks Decline on Speculation of New Cooling Measures

source: bloomberg

By Zhang Shidong

June 1 (Bloomberg) -- China's shares fell, erasing earlier gains, on concern the government will step up efforts to cool the market after a tripling of the tax on securities trades failed to deter new investors.

About 100 stocks, or a third of the CSI 300 Index's members, fell by the 10 percent daily limit, including Bright Dairy & Food Co. and Dongfeng Automobile Co.

``Investors, particularly individual ones, are worried about what else the government will do to curb the market,'' said Fan Dizhao, who helps manage about $1.8 billion at Guotai Asset Management Co. in Shanghai. ``This is a time of uncertainty.''

The CSI 300 slid 124, or 3.2 percent, to 3803.95 at the close, after earlier climbing as much as 2.2 percent. Account openings at brokerages exceeded 400,000 for the third time in a row on May 30, when stamp duty was raised to 0.3 percent and the CSI 300 plunged 6.8 percent. The benchmark rose 1.1 percent yesterday.

Bright Dairy, China's biggest yogurt maker, tumbled 1.43 yuan to 12.83. Huadian Power International Corp., the country's third-largest publicly traded power producer, slid 1.11 yuan to 9.98. Dongfeng, which makes light trucks in China with Nissan Motor Co., plunged 0.87 yuan to 7.80.

``New investors don't seem to care about the increase in the stamp duty,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages $517 million. ``If the market continues the fast pace of the rally like before, that may trigger even tougher crackdown measures.''

The measure, which tracks yuan-denominated A shares listed on China's two exchanges, dropped 4.6 percent this week, the first decline in 11 weeks. It's up 86 percent this year, the most among 90 global benchmarks tracked by Bloomberg.

More Measures

The government might introduce further measures, such as launching index futures, banning day trades and speeding up the sale of state-owned shares if the market doesn't cool down, Citigroup Inc. strategist Lan Xue said in a research note.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, lost 2.7 percent to 4000.74. The Shenzhen Composite Index, which covers the smaller one, slid 5 percent to 1128.57.

Elsewhere, Panzhihua New Steel & Vanadium Co., the world's third-biggest producer of vanadium steel used in high-speed railroads, plunged 1.36 yuan, or 10 percent, to 12.23.

The parent company intends to ``go public through the vanadium unit,'' Panzhihua Steel said in a statement to the Shenzhen Stock Exchange today.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
Last Updated: June 1, 2007 03:38 EDT

China Stocks Fall From Record After Transaction Tax Tripled

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