China's stock market, after experiencing its sharpest daily fall
in 10 years, saw a rebound of nearly 4 percent yesterday as the
government allayed fears of a new capital gains tax.
The Shanghai Composite Index, which plummeted 8.84 percent on
Tuesday, closed 3.94 percent higher at 2,881.073 in heavy
trade.
"Tuesday's move was profit taking, not a fundamental shift in
sentiment," said Stephen Green, senior economist at Standard
Chartered Bank in Shanghai.
Meanwhile, officials at the Ministry of Finance?and the
State Administration of Taxation said the government would not
impose a capital gains tax on stock investments. Analysts believe
the rumor was the catalyst for the big drop on Tuesday.
Premier Wen Jiabao said yesterday the government would
protect the safety and stability of financial markets, according to
Xinhua News Agency.
As China's major stock index recovered about half of Tuesday's
losses, the rest of Asia fell yesterday.
"Tuesday suggested to some that China's stock market and the
world's are now fundamentally linked; today's action pours cold
water on that theory," Green said.
Although most analysts and economists are optimistic about the
long-term performance of China's stock market, some analysts are
forecasting more corrections.
"We see another 15 to 20 percent correction of the A-share index
as is necessary and healthy," said Ma Jun, chief economist with
Deutsche Bank (Greater China).
Dong Chen, a senior analyst with CITIC China Securities, said
there will certainly be more sharp ups and downs in the market this
year, so investors had better fasten their seatbelts.
He added Ping An's performance today would have limited
impact on the market.
The country's second-largest insurer will make its debut on the
Shanghai bourse today, raising 38.87 billion yuan (US$5.02
billion)?with an initial offer price of 33.8 yuan
(US$4.3)?per share. It is the second mainland insurer to list
after China Life.
"If Ping An shares open lower than 45 yuan (US$5.8), it will
still have enough growth potential, and could help lead upward
momentum in the financial sector," Dong told China Daily.
"But if the debut price is above 52 yuan (US$6.7), there may be
more downward pressure, and it's likely to trigger a slide in
financial shares."
The insurer said it would issue about 1.15 billion
yuan-denominated A shares, accounting for 15.66 percent of the
insurer's expanded stock of 7.345 billion shares.
Premier Calls for More Financial Reform
(China Daily March 1, 2007)