China has taken a significant step to rebuild confidence in its second-largest stock market by reducing the stamp duty on stock trades for the first time since 2008.
Effective from August 28, the levy imposed on stock transactions will be cut in half, as announced by the government in a statement released on Sunday. This move follows a rare commitment made by Beijing last month to boost investor confidence and revitalize the capital markets.
This reduction has the potential to trigger an immediate upswing in China’s substantial USD 9.6 trillion equity market, which is highly responsive to changes in policies that affect market liquidity. The decreased stamp duty is particularly advantageous for Chinese brokerage firms and quantitative hedge funds that rely on rapid trading strategies.
Chinese authorities are striving to entice back investors who have become disenchanted with the country’s financial assets due to concerns about various economic indicators, such as a decline in property values, instances of trust defaults, and low consumption data.
According to data from Bloomberg, foreign investors have been consistently selling mainland China stocks for an unprecedented 13 consecutive sessions up until Wednesday, indicating their growing apprehension.
In 2023, the CSI 300 Index faced a decline of approximately 4%, continuing its trend of losses from the previous years. Moreover, it is lagging a broader measure of Asian equities by roughly six percentage points.
To support the market, authorities have recently encouraged major financial institutions in the country, including pension funds and large banks, to increase their investments in stocks.
Additionally, they have provided directives to mutual fund managers, urging them to increase their investments in their own equity funds. They have also taken measures such as reducing handling fees for stock transactions and encouraging companies to intensify their share buyback initiatives.
China has made several adjustments to the stamp duty applied to stock trading over the years. In May 2007, the rate was raised to 0.3% to temper a surging market that was attracting over 300,000 new investors daily.
Subsequently, in April 2008, the government significantly lowered the levy to 0.1% to provide support to the market following a sharp decline, which ultimately catalysed a bullish trend in the subsequent year.