China SSEC reversed at the LT support as noted that SSEC 3000 +/- is a major support.
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Market watching policy moves to support equities
Commentary: Impact of Beijing policy tools should not be underestimated
By Craig Stephen
Last update: 5:45 p.m. EDT April 27, 2008
HONG KONG (MarketWatch) -- In the week ahead, focus is likely to remain on China's A-share markets after last week's controversial cut in stamp duty raised investors' hopes of a concerted policy shift to support domestic equity markets.
Over the week the Shanghai A-share market ended with a 15% gain -- the biggest weekly move since 1996.
It has been a widely held belief among mainland Chinese retail investors the government would direct its policy tools to resuscitate the ailing stock markets in time for the Beijing Olympics. As it's already promised cloudless skies and a bumper hoist of gold medals, it would surely not let proceedings be spoiled by toxic equity markets that recently flirted with levels 50% down from last year's highs.
The logic may seem straightforward, but can this really be an equity strategy for serious investors?
It appears some investment banks seem to think so.
HSBC Securities said in a new research note that last week's cut in stamp duty from 0.3% to 0.1% on A-shares is not a market bailout. Rather, it puts in place a stronger foundation for equities to move higher -- that is, along with measures to keep non-tradable shares off the market and new plans to introduce margin lending.
The brokerage said the stamp-duty cut equates to a 100 billion yuan ($14.3 billion) injection of capital this year set against tax receipts paid out. Last year, the Ministry of Finance collected over 200 billion yuan in tax receipts and 60 billion yuan in the first quarter of 2008.
They also argue that because this amount is greater than the total dividends paid to investors last year, it will change the mentality of A-share investors toward the more medium-to-long term. This latter point seems a bit of a stretch, however, when you stack such miniscule dividends up against the capital gains investors have grown used to.
But overall, there appears to be a belief in investment circles that the change in government policy could indeed herald an inflexion point in the market. Investing on such a premise might seem to be asking for trouble, but remember these are immature mainland Chinese equity markets, where for now at least, sentiment and momentum trading will likely trump fundamentals every time.
And in a country where the state controls what you watch on TV, what you read in the newspapers and how many children you have, it is surely not unreasonable for rookie investors to believe the government can also control the equity market.
If you look at how China has written its own equity market rulebook for A-shares, it certainly appears to be trying. This class of equity is largely off limits to foreign money, meaning it does not have to yield to the discipline of foreign institutional money punishing perceived bad policy, similar to other emerging markets.
Meanwhile, the IMF and others have highlighted how the IPO market is rigged to transfer equity gains to investors in a process that resembles a one-way equity bet. With the China Securities Regulatory Commission (CSRC) controlling the ultimate pricing on new issues, last year investors feasted on a conveyor belt of often tripe-digit first-day gains.
Investors will also have long enough memories to recall that it was the increase in stamp duty in May of last year that preceded the long correction in A-shares.
And when it comes to China's economy, as the state still owns or controls so many key industries, it arguably has much more scope than many countries to maneuver policy once it decides to change course.
The heavy hands of Beijing policy can be clumsy, but it's wise not to underestimate their impact. Getting things done is much simpler when inconveniences like democracy are absent, after all.
Hong Kong, for instance, has previously seen its market jolted into life after a policy shift by its giant neighbor. In 2003 many brokers were too busy dissecting the gloomy post-SARS outlook to realize the significance of a new travel permit allowing individual mainland visitors to visit Hong Kong. As hotels, shops and restaurants filled up with these new tourists, the market and economy were quickly hoisted off the floor. And last year, the Hang Seng Index was going nowhere fast until China proposed its investment "through train."
In an economy where the meddling hand of Beijing is a fact of life, policy risk for equities -- good and bad -- will have to be watched closely.
Perhaps the best advice is to stay focused on the earnings numbers China's corporates keep churning out. China Construction Bank (HK:939: news, chart, profile) just released a 167 % increase in first-quarter profit to 32.12 billion yuan. More results like that and perhaps Beijing will not be needed to coax the market higher.
http://investorshub.advfn.com/boards/read_msg.asp?message_id=28599239
~~~
Market watching policy moves to support equities
Commentary: Impact of Beijing policy tools should not be underestimated
By Craig Stephen
Last update: 5:45 p.m. EDT April 27, 2008
HONG KONG (MarketWatch) -- In the week ahead, focus is likely to remain on China's A-share markets after last week's controversial cut in stamp duty raised investors' hopes of a concerted policy shift to support domestic equity markets.
Over the week the Shanghai A-share market ended with a 15% gain -- the biggest weekly move since 1996.
It has been a widely held belief among mainland Chinese retail investors the government would direct its policy tools to resuscitate the ailing stock markets in time for the Beijing Olympics. As it's already promised cloudless skies and a bumper hoist of gold medals, it would surely not let proceedings be spoiled by toxic equity markets that recently flirted with levels 50% down from last year's highs.
The logic may seem straightforward, but can this really be an equity strategy for serious investors?
It appears some investment banks seem to think so.
HSBC Securities said in a new research note that last week's cut in stamp duty from 0.3% to 0.1% on A-shares is not a market bailout. Rather, it puts in place a stronger foundation for equities to move higher -- that is, along with measures to keep non-tradable shares off the market and new plans to introduce margin lending.
The brokerage said the stamp-duty cut equates to a 100 billion yuan ($14.3 billion) injection of capital this year set against tax receipts paid out. Last year, the Ministry of Finance collected over 200 billion yuan in tax receipts and 60 billion yuan in the first quarter of 2008.
They also argue that because this amount is greater than the total dividends paid to investors last year, it will change the mentality of A-share investors toward the more medium-to-long term. This latter point seems a bit of a stretch, however, when you stack such miniscule dividends up against the capital gains investors have grown used to.
But overall, there appears to be a belief in investment circles that the change in government policy could indeed herald an inflexion point in the market. Investing on such a premise might seem to be asking for trouble, but remember these are immature mainland Chinese equity markets, where for now at least, sentiment and momentum trading will likely trump fundamentals every time.
And in a country where the state controls what you watch on TV, what you read in the newspapers and how many children you have, it is surely not unreasonable for rookie investors to believe the government can also control the equity market.
If you look at how China has written its own equity market rulebook for A-shares, it certainly appears to be trying. This class of equity is largely off limits to foreign money, meaning it does not have to yield to the discipline of foreign institutional money punishing perceived bad policy, similar to other emerging markets.
Meanwhile, the IMF and others have highlighted how the IPO market is rigged to transfer equity gains to investors in a process that resembles a one-way equity bet. With the China Securities Regulatory Commission (CSRC) controlling the ultimate pricing on new issues, last year investors feasted on a conveyor belt of often tripe-digit first-day gains.
Investors will also have long enough memories to recall that it was the increase in stamp duty in May of last year that preceded the long correction in A-shares.
And when it comes to China's economy, as the state still owns or controls so many key industries, it arguably has much more scope than many countries to maneuver policy once it decides to change course.
The heavy hands of Beijing policy can be clumsy, but it's wise not to underestimate their impact. Getting things done is much simpler when inconveniences like democracy are absent, after all.
Hong Kong, for instance, has previously seen its market jolted into life after a policy shift by its giant neighbor. In 2003 many brokers were too busy dissecting the gloomy post-SARS outlook to realize the significance of a new travel permit allowing individual mainland visitors to visit Hong Kong. As hotels, shops and restaurants filled up with these new tourists, the market and economy were quickly hoisted off the floor. And last year, the Hang Seng Index was going nowhere fast until China proposed its investment "through train."
In an economy where the meddling hand of Beijing is a fact of life, policy risk for equities -- good and bad -- will have to be watched closely.
Perhaps the best advice is to stay focused on the earnings numbers China's corporates keep churning out. China Construction Bank (HK:939: news, chart, profile) just released a 167 % increase in first-quarter profit to 32.12 billion yuan. More results like that and perhaps Beijing will not be needed to coax the market higher.
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