Stocks surge 2.95% in absence of tightening measures
By Li Zengxin (chinadaily.com.cn)Updated: 2007-06-18 11:45 A new round of buying waves were seen this morning, in the absence of tightening measures over the weekend, after the central bank had announced the consumer price index (CPI) in May grew 3.4 percent last week.
The Shanghai Composite Index, opening higher from 4,195.39, went through the morning session on a clear and stable upward trend, and closed at 4,254.87, up 122 points or 2.95 percent from Friday's closing. The Shenzhen Component Index, tracking the smaller Shenzhen Stock Exchange, closed at 14,122.73, up 3.11 percent.
Of the A shares listed on the two exchanges, as many as 1,250 went up, while only 43 declined and 157 ended unchanged.
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After eight days of growth since June 5, the stock market has largely recovered from the previous loss caused by the "shock" move of the stamp tax hike on May 29. By last Friday, the total market value of all securities listed in the two exchanges was 17,006.9 billion yuan, 1,014.3 billion yuan up from a week before June 8. The figure also surpassed that of May 30, the next day of the hike.
Since last week, there had been rumors that the finance authority would abolish the 20 percent tax on interest income. Some worry that the cancellation of the tax could be another hit to the stock market, as it increases the gains from depositing and may divert capital from the stock market.
However, securities professionals and experts believe even if the tax is exempted, it won't affect the stock market largely. Under the current negative real interest rate - nominal one year rate at 2.448 percent, deducting the 3.4 percent of CPI growth, the interest tax is obviously improper and affects the poorer more than the wealthier.
Canceling the tax will for sure enhance the attractiveness of depositing in
bank accounts. But still the return is non-comparable with other investment
channels, take the stock market as an example, said analysts. The fundamental
rationale is that Chinese residents have started building up investment
awareness and inclination, while they are getting richer along with the booming
Chinese economy, analysts believe.
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