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Government Intervening To Prop Up Shanghai Stock Prices

With the Shanghai stock exchange’s bench mark index having fallen earlier this week to 50% of its all time high, the regulators have cut stamp duty on share trading from 0.3% to 0.1%.

The announcement, not a surprise though the timing was unexpected, sent share prices soaring. The Shanghai Composite Index closed Thursday’s trading up 9.3%, its largest one day rise since the introduction of daily trading limits in 2001. Trading volume was double Wednesday’s and the highest of the year.

Xinhua‘s report suggests an intention on the part of the authorities to bolster market sentiment, especially among retail investors, at a time when rising energy and food prices are putting inflationary pressures on the economy. On Sunday, the authorities had announced new rules that make it more difficult for large blocks of shares to come to market, seen as an other official attempt to underpin prices.

Stamp tax on share transactions was tripled last May in an attempt to do the reverse – rein in a frenzied market. But that was then.

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