Posted by: Frederik Balfour on April 24, 2008
Gee whiz. The Shanghai Stock Exchange lept 9.3% today, its highest one-day jump in six years the day after the government announced it was slashing the stamp duty tax from 0.3% to 0.1%. Only one of the 888 [and that’s a lucky number] of the listed companies declined, with many stocks hitting the daily 10% price limit.
I’ve heard of a dead cat bounce before, but this feline should try out for the Olympic high jump team. But maybe the Olympics is exactly what traders have on their minds. With the big 100 day countdown not far away, people probably figure Beijing will do whatever it takes to prop up the market. But I wouldn’t be too sure. Regulators seemed content to sit and watch the market plunge 50% below its October highs when it fell below the 3000 point mark briefly last week. Then on Sunday it announced that trades worth more than 1% of a company’s market capitalization would not be allowed on the open market, so block trades needed to be negotiated between a buyer and seller. That’s all to the good. But on Monday, the move didn’t do enough to juice the market so the next day the regulators resorted to the stamp tax cut.
Strange thing is, many people anticipated the stamp tax break, yet the market didn’t price that in until it actually happened, not exactly evidence of forward looking investors. And don’t forget that last May the government tinkered with the stamp tax to try to cool the white hot market by tripling it from 0.1% to 0.3%. Yet that 200% increase in the duty [compared with a 66% decrease yesterday] barely broke the market’s stride. Back then, new investors were opening 200,000 accounts per day, and nobody thought about the downside.
So what’s the takeaway from all this? That while the brokers and mutual fund managers like to tell us otherwise, the Shanghai markets are still pretty much a casino. I mean, the fundamentals this morning were exactly the same as the fundamentals 24 hours earlier, but punters have been dying for an excuse to dive back into the market, and they got it. But I wouldn’t be surprised if the market whipsaws down again in a day or two, especially as more corporate earnings for the first quarter come out. I could be wrong, but that’s the great thing about blogging, especially on the stock market. I could revise my view any time.