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Chinese stock rally fades after Beijing cuts trading levy

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Sharp gains for Chinese stocks faded on Monday after Beijing cut a levy on share trading for the first time since the 2008 financial crisis, underlining fragile investor confidence in the world’s second-largest economy.

The benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks climbed as much as 5.5 per cent in early trading, after the Ministry of Finance said on Sunday that it would halve stamp duty to 0.05 per cent in order to “invigorate capital markets and boost investor confidence”.

But the index closed just 1.2 per cent higher while Hong Kong’s Hang Seng index was up 1.3 per cent in afternoon trading after paring initial gains of more than 3 per cent.

By comparison, the gauge closed up more than 9 per cent the day after the levy was last cut in 2008.

The stamp duty cut is part of the latest attempt by Beijing to reinvigorate Chinese markets. Top leaders promised greater economic support in late July, spurring net foreign inflows to Chinese stocks, but those have since been completely reversed.

“I would love to say this time was different,” said a trading desk head at one Chinese brokerage in Hong Kong, “but the market is still incredibly pessimistic based on the flows we are seeing today. People are selling into the rally, and investors don’t really see these moves as a catalyst for changing the bigger economic picture.”

Separately, the China Securities Regulatory Commission said it would slow the pace of initial public offerings in light of “recent market conditions”. New listings in China often sap liquidity from broader markets and can depress valuations, as retail investors cash out of their holdings to put money towards new share offerings.

While regulators had hinted at the latest measures in an announcement this month, the speed with which they were delivered surprised markets, traders said.

“The good news is that we are seeing more easing measures,” Hui Shan, chief China economist at Goldman Sachs, wrote in a note following the moves. “But the bad news is that these measures are still piecemeal, especially in the context of the severe property downturn.”

Louis Tse, managing director at Hong Kong-based brokerage Wealthy Securities, said: “We had a similar rally last month after top officials promised more support, but that has dissipated, and this looks like the same thing. They have to take concrete, sustained action.”

The intensity of the liquidity crisis in China’s real estate sector was underscored by a fall of about 80 per cent for Hong Kong-listed shares in struggling developer China Evergrande, which resumed trading on Monday for the first time in 17 months.

Futures markets tipped the S&P 500 to open 0.2 per cent higher on Wall Street later in the day, while markets in London are closed for a bank holiday.

Elsewhere in the region, Japan’s Topix index rose 1.5 per cent and Australia’s S&P/ASX 200 gained 0.6 per cent.

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