The Chinese government cut the "stamp duty" tax on equity trades today, reducing it to 0.1 percent, from 0.3 percent. Chinese shares trading here rallied on this news. And FXP took a hit.
Some choice explanation from Bloomberg:
``The government is trying to put a floor on the market,'' said Tony Hann, who helps manage $5 billion of investments in emerging markets at WestLB Asset Management in London. ``That will cause it to rally.''
Brokerages such as Citic Securities Co. may advance the most as the tax reduction boosts trading, Hann said. Transactions on the two main stock exchanges slipped from a weekly average of 14.7 billion shares in 2007 to 6.3 billion shares last week.
The stamp assessment was tripled last year in an attempt to cool a rally that was drawing more than 300,000 new investors a day. The CSI 300 Index surged sixfold in 2006 and 2007 before slumping this year on concern government efforts to stem inflation will curb earnings growth.
``China is literally trying to pump up their stock market,'' said Jack Ablin, who oversees more than $60 billion as chief investment officer at Harris Private Bank in Chicago. ``They fear that a crash could have a deleterious effect on the attitudes of their middle class.''
I added a small number of shares to my beaten-down FXP position at $65.50, for a new cost basis of $90.25.
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