Shanghai: China’s stocks tumbled the most in three months on Wednesday, 30 May 2007, after the government tripled the tax on securities transactions to cool a rally that’s drawing more than 300,000 new investors a day. The CSI 300 Index dropped 281.83 points, or 6.8%, to close at 3,886.46, the biggest fluctuation among markets included in global benchmarks. The value of local stocks has more than doubled this year to $2.47 trillion and brokerage accounts topped 100 million for the first time this week.
“The Chinese government is concerned that there are too many people in the market, and they’re gambling,” Mark Mobius, who oversees some $30 billion (Rs1.2 trillion) as managing director of Templeton Asset Management Ltd, said in an interview in Hong Kong. “It’s good for people to not expect that markets go up continuously.”
More than half of the shares included in the CSI 300 fell by the 10% daily limit on Wednesday, including Citic Securities Co., the largest publicly-traded brokerage, and China Shipping Development Co., the biggest oil tanker operator.
The value of shares traded in China on Wednesday was a record 407.1 billion yuan ($53 billion), according to Bloomberg. That’s more than what changed hands in either of the New York Stock Exchange’s past two trading sessions.
Zooming up: The value of shares traded in China on Wednesday was a record 407.1 billion yuan, or $53 billion.
Stamp duty on share trades was increased to 0.3% “to promote the healthy development of the securities market”, China’s finance ministry said on its website. The central bank had, 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.
The government has been trying to curb speculation for months. A crackdown on investments with borrowed money on 27 February led to a 9.2% drop in the CSI 300, 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 about $3.3 trillion of stock-market value.
Wednesday’s losses contributed to declines in regional markets, with Japan’s Nikkei 225 Stock Average losing 0.5% and Hong Kong’s Hang Seng Index falling 0.9%.
“Today’s correction in Chinese shares is causing a knee-jerk reaction across Asia,” said Shane Oliver, who helps oversee $83 billion at Sydney’s AMP Capital Investors. “Markets have become skittish on this type of news given some of the extreme reactions in recent history.”
Mobius said a 30% decline in China’s stock valuations would be “healthy”. A steeper drop may trigger unrest, said Fraser Howie, co-author of the bookPrivatizing China: The Stock Markets and Their Role in Corporate Reform.
“If the market falls 50%, a lot of retail investors will lose money, vested interests will lose money,” Howie said. “That leads to demonstrations and people in the streets.”
Li Shi, a 50-year-old retired factory worker, predicts the market will be in the doldrums for the next couple of months. He bought shares of property developer Beijing Centergate Technologies (Holding) Co. in April, resulting in a paper profit of 10,000 yuan before Wednesday’s fall. The stock plunged by the 10% daily limit on the Shenzhen bourse. “I don’t dare to sell because I’ll have to incur a real loss if I do. I’ve invested my entire life savings in the market.”
Some 22 million accounts have been opened so far this year, four times the amount in all of 2006, according to the China Securities Depository & Clearing Corp. Investors on 28 May opened 455,111 accounts, a daily record. They’re piling in as earnings improve after four straight years of growth exceeding 10%. The World Bank on Wednesday raised its 2007 growth forecast to 10.4%, from 9.6%, and Moody’s Investors Service said China’s debt rating is under review for possible upgrade. Surging investment has made Chinese shares the most expensive in Asia-Pacific. That’s almost double valuations in Japan and India.
Central bank officials, former US Federal Reserve chairman Alan Greenspan and Li Ka-shing, Asia’s richest man, have all warned of a looming correction since the start of May. The CSI 300, which tracks yuan-denominated A shares, on Tuesday rallied to a new high, its 11th record this month.
Zhang Dingmin in Beijing, Stuart Kelly in Sydney, and George Hsu in Taipei contributed to this story.