Chinese Tax on securities raised to 0.3%

Shanghai stocks are trading lower today after the announcement that the stamp duty on securities transactions will be raised from 0.1% to 0.3%. The Finance Ministry justified the increase as necessary to ‘promote the healthy development of the securities market’. The domestic share market has more than doubled in value in the last twelve months, and 22 million share accounts have been opened by domestic investors this year alone.

Charlie Awdry, manager of the Gartmore China Opportunities Fund, sees this as a small move, part of the government’s broader desire to regulate the domestic share market, and temper retail investors’ enthusiasm. Measures designed to calm the market include the issuing of risk warning memoranda on the dangers of trading on non-fundamental factors, and a 27 basis point increase in the one-year lending rate, made earlier this month. The amount that qualified domestic investors (QDIIs) can invest in equities outside China has also been increased.

Charlie says, “At present just over 25% of domestic financial wealth is held in shares, a low figure compared with the regional average. We do not believe that the share price realignment will derail the economy, which expanded at 11.4% in the first quarter. Poor quality of the stocks caught up in the most recent market rally indicates a frothy market.”

The Gartmore China Opportunities Fund is currently rated as the top performing Fund over 1, 3 and 5 years among its peers. The majority of its exposure is via the Hong Kong-based ‘H’ share market, and other cheaper markets. It has no direct exposure to the highly valued Shanghai ‘A’ share market, now trading at 31 times forward earnings.