Hang Seng, China A50: bounce beckons on stamp duty cut

Chinese policymakers have cut stamp duty on stock market trades for the first time since 2008, announcing the policy move among a sweeping array of measures on Sunday designed to support the nation’s struggling equity market. Given the success stamp duty changes have had previously when it comes to stock market performance, the news may provide the catalyst to spark a meaningful reversal of the recent bearish trend.

Quick recap of the measures announced

China’s Ministry of Finance announced the amount of stamp duty charged would be halved to 0.05% starting from August 28, a move it said was designed to invigorate capital markets and boost investor confidence. The government also pledged to slow the pace of initial public offerings (IPOs) and lowered deposit requirements for margin trading, adding to a lengthening list of measures already announced to help stabilise market conditions.

China’s mixed track record for stock market interventions

China’s government has attempted to deliver desired policy and economic outcomes using the nation’s stock market in the past, resulting in a string of boom-bust cycles in the period since the GFC. In 2006, Chinese equities rallied around 300% in a little over a year before giving back most the gains in similarly quick fashion. Of note, an increase in stamp duty on stock trades was one of the catalysts that contributed to the market crash.

Separately, Chinese stocks more than doubled in under a year back in 2015, again assisted by a strong of policy measures to support equities. That too proved to be unsustainable, giving back most of the gains within the space of months.

Measures provide scope for a stock market bounce

While we may see a similar outcome on this occasion, especially when you consider how depressed valuations and investor sentiment is while household savings reportedly sits at the highest level on record, the weak macroenvironment in China does not bode well for corporate earnings, especially with economic activity in other major nations clearly slowing down. Without meaningful support measures to spur on activity in the real economy, it’s debatable whether these latest measures can deliver anything more than a short-term bounce from oversold conditions.

The China A50 looks set to rally hard on the back of the latest policy announcements, suggesting a retest of the strong downtrend it’s been stuck in could be on the cards. It currently kicks in around 13,260. A break of that level would open the door for a move back towards 13,400, 13,800 and potentially the year-to-date high located above 14,400. On the downside, support is likely to be found around 12,850 and again at 12,750.

Like the A50, Hong Kong’s Hang Seng has found decent support recently, suggesting the latest policy measures may see a retest of the downtrend it’s been stuck in this year. Dips toward 17,500 have been bought over the past fortnight, suggesting a stop-loss order below that level may be appropriate for trades looking for a bounce. On the topside, there’s minor resistance located around 18,500, 19,000 and again at 19,500. The logical upside target will be a retest of the long-standing downtrend, currently located just above 21,000.

-- Written by David Scutt

Follow David on Twitter @scutty

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.