Beijing made its latest effort to slow skyrocketing domestic equities, as it raised the "stamp tax" on stock trading to 0.3%, from 0.1%, sending the Shanghai Composite down 6.5%. The rest of Asia traded lower, but nowhere near China's drop. Analysts expect limited, if any, negative impact on the domestic economy and overseas equities. Bloomberg quoted analysts and economists who cited a lack of correlation between domestic equities and overall economic growth, and note limited shareholder exposure for both domestic and overseas investors (based on total assets invested and the amount of asset exposure, respectively). On Wednesday, the World Bank raised its forecast for China's 2007 GDP to 10.4% from 9.6%, citing better-than-expected Q1 data. The CSI 300 Index, which tracks China's A-shares fell 6.8%. B-shares in Shanghai plunged 9% and by nearly the same amount in Shenzhen. H-shares in Hong Kong lost 2%, while the Hang Seng traded 0.86% lower. Separately, state media reported foreign investment banks will be allowed to take larger stakes in domestic brokerages and joint ventures later this year. There is currently a cap of 20% and 33%, respectively. Leading global i-banks are said to be watching developments closely for market entry and/or expansion.
Sources: Bloomberg [i, ii], MarketWatch, Reuters
Commentary: 'Pao Mo': That's Chinese for Bubble • Greenspan Warns of 'Dramatic Contraction' in Chinese Stocks, Moves Markets • The Bubble Theorists Have Shanghai Wrong • Chinese Stocks: Putting Faith in Numbers
Stocks/ETFs to watch: Morgan Stanley China A Share (NYSE:CAF), iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI), PowerShares Gld Drg Haltr USX China (NASDAQ:PGJ), The China Fund (NYSE:CHN), The Greater China Fund (NYSE:GCH), JF China Region Fund (NYSE:JFC), First Trust ISE ChIndia Index Fund (NYSEARCA:FNI)
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