China equities were headed for the best session in a month on Monday after authorities announced a reduction on the taxes on stock purchases and other market supportive measures, to lure back wary investors.
In a short statement, the China Finance Ministry announced Sunday that stamp duties on securities transactions would be halved, the first move since 2008, according to Bloomberg. The ministry said the move, in effect from Monday, was aimed at stimulating capital markets and boosting investor confidence.
Separately, the China Securities Regulatory Commission said it would cut the minimum margin ratio for investors to buy securities from 100% to 80%, with effect from Sept. 8.
The regulator also said it would slow the pace of the market for initial public offerings, citing “the recent market situation.” In addition, limits will be placed on sales of stocks by top shareholders if their companies haven’t been distributing enough dividends or if share prices have fallen below that of the IPO.
According to Bloomberg data, a little under half of shares of onshore firms are trading above IPO and book value prices. Both local and foreign investors have cooled on China stocks in recent months.
China’s CSI 300 index XX:000300 gained 1.1% on Monday, though off a much bigger pop from the stimulus news. According to FactSet, August is poised for a 6.5% loss, which would be the weakest monthly return since October 2022 if that percentage holds.
The slump for stocks has come have investors have shied away from equities amid a disappointing rebound for the economy from a COVID-19 lockdown. A property slump, exacerbated by waning consumer confidence has also contributed to a market slowdown and loss of appetite for stocks.
The Hang Seng HK:HSI also got a lift from the moves by China to ease trading rules, with the index up 1.2%, though down 9.4% in August so far, which would also be its worst monthly return since last October.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted data released Sunday showed Chinese company profits fell 6.7% last month from a year earlier.
“That’s lower than 8.3% printed in June, but note that for the first seven months of 2023, profits declined 15.5%, and that is highly disquieting given the slowing economic growth and rising deflation risks, along with the default risks for some of the country’s biggest companies,” she said in a note to clients.
Not sharing in Monday’s rally was China Evergrande EGRNF, +201.00%, a heavily indebted developer that resumed trading on the Hong Kong Exchange after more than a year. Shares tumbled 78% in Hong Kong, though off deeper lows.