Will the Bubble Burst?
Chinese Stocks Plunge as Transaction Tax Trebled
China's main share index has fallen 6.5% in Wednesday trading following the government’s decision to triple the tax on stock transactions. The move is seen as an effort to cool the overheated market that has led to fears of a possible bubble.
The Shanghai Composite Index had risen 62% this year to Tuesday's record close and has quadrupled in value since the start of 2006. Last week former Federal Reserve chairman Alan Greenspan warned of a looming correction in the Chinese stock market.
It’s the unprecedented demand from domestic investors that has fueled the rally. There is a flood of fresh money from millions of new investors – including students and pensioners - sinking their savings into the stock market in the hope of super returns as there is a scarcity of other investment options.
The number of stock trading accounts has risen to about 100 million, with tens of thousands being opened every day. It is reported that 300,000 people a day opened brokerage accounts last week. The finance ministry is tripling the stamp tax on stock trading to 0.3 percent, from 0.1 percent, effective Wednesday. Although investors are sanguine about growth prospects and many feel that the correction may be short-lived, there are fears that the government will follow with more steps to curb speculation and excessive flow of money into the stock market.
Chinese Stocks Plunge as Transaction Tax Trebled
China's main share index has fallen 6.5% in Wednesday trading following the government’s decision to triple the tax on stock transactions. The move is seen as an effort to cool the overheated market that has led to fears of a possible bubble.
The Shanghai Composite Index had risen 62% this year to Tuesday's record close and has quadrupled in value since the start of 2006. Last week former Federal Reserve chairman Alan Greenspan warned of a looming correction in the Chinese stock market.
It’s the unprecedented demand from domestic investors that has fueled the rally. There is a flood of fresh money from millions of new investors – including students and pensioners - sinking their savings into the stock market in the hope of super returns as there is a scarcity of other investment options.
The number of stock trading accounts has risen to about 100 million, with tens of thousands being opened every day. It is reported that 300,000 people a day opened brokerage accounts last week. The finance ministry is tripling the stamp tax on stock trading to 0.3 percent, from 0.1 percent, effective Wednesday. Although investors are sanguine about growth prospects and many feel that the correction may be short-lived, there are fears that the government will follow with more steps to curb speculation and excessive flow of money into the stock market.
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