Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

China Stock Market Crash Update: The Real Story ...

Stock-Markets / Chinese Stock Market May 30, 2007 - 03:18 PM GMT

By: Marty_Chenard

Stock-Markets

Chinese Government officials got real worried when the Shanghai continued its parabolic rise and blew through its 12 year Major resistance level.

This morning, their markets dropped over 6% after the government increased the stamp tax on Security transactions. The news media are making a "big deal" out of the tax increase by running headlines that say, "China China's CSI 300 Drops After Transaction Tax Tripled ".


Tripling any tax sounds like something terrible being inflicted on Chinese investors, but that is not the real story. The real story is that the stamp tax was initiated in the early 90's at 0.6%. That's six tenths of 1% ... not much of a tax rate by any standards. Over time, they lowered the tax rate to 0.1% to promote investing in their stock market. Yes, today they tripled it, but that only took it to 0.3% or one half of what it was when it started .

When was the last time the Chinese government raised the tax and what happened afterwards? It was in May of 1997, and the tax was increased from 0.3% to 0.5% . The next day, the Shanghai Composite rose 2.3%. And then, slowly over the next 10 weeks, the Shanghai dropped just under 30%.

At 0.3%, the tax may not be high enough to get the desired effect the government wants ... here is why:

From February 7 of this year to May 29th., the Shanghai Composite rose 70.6% or about 1.18% per day . A 0.30% tax can be paid off from the first 99.43 minutes of the average trading day in China. This big "Tripling tax rates" that the media is touting is peanuts compared to the average daily return. See the chart below for the calculations.

This morning's reaction was a knee-jerk reaction that still left the Shanghai Composite Index above its support line as seen in our chart below. If it breaks through the support level tomorrow morning, then it could drop 500 points for another 12% drop. There is a good probability that it would rebound back up from there forcing the Chinese government to initiate another tax increase. It is more likely that the second increase to around 0.5% would get the desired action that the government wants.

China had a bear market from 2001 to 2005. At that time, their key index fell from 2,300 to under 1,000 points while their economy grew by about 10 percent per year. The World Bank just raised its forecast of China's economic growth this year to 10.4 %, from the previous 9.6 % projection.

A 20% drop on the Shanghai would cause a modest impact on their economy according to J.P. Morgan. A 50% drop would do significant damage to their citizens and economy with a strong likelihood that the Chinese would protest with public demonstrations and civil disorder. The current sentiment of many Chinese investors is that they shouldn't sell because only then would they have a "real loss". I announced early in the year that China would have a stock market crash sometime this year. I don't feel that this is it right now, but it is the beginning of a process where a China crash will unfold from.

China Stock Market Crash Update: The Real Story ...

The links for all our previous China Stories, Analyses, and updates are below:

Links: Story Date
China Stock Market Crash Update: The Real Story ... Part 8 30-May
www.stocktiming.com/ChinaWarning.htm Part 7 17-May
China's Stock Market, Tick, Tick, Tick ??? Part 6 7-May
How and Why the Chinese Shanghai Stock Market Index could implode ... Part 5 27-Apr
Risk of China Shanghai Index Crash as Parabolic Rise Continues towards 12 Year Resistance Trendline Part 4 23-Apr
China's Shanghai Index Is Falling "On Schedule" to Effect All Financial Markets Part 3 19-Apr
Warning China's Stock Market will Crash this year Part 2 20-Feb
www.stocktiming.com/China2.htm Part 1 15-Feb
www.stocktiming.com/China1.htm Comments 7-Feb

 

By Marty Chenard
http://www.stocktiming.com/

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages . I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

Marty Chenard is the Author and Teacher of two Seminar Courses on "Advanced Technical Analysis Investing", Mr. Chenard has been investing for over 30 years. In 2001 when the NASDAQ dropped 24.5%, his personal investment performance for the year was a gain of 57.428%. He is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools.  As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL.  He is an advanced technical analyst and not an investment advisor, nor a securities broker.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Tim
31 May 07, 03:39
Housing Crash in Australia

We are worried down here in Oz. Australia is in the midst of it's biggest housing slump and we are paranoid that when the Chinese market goes we will follow. Australia makes most of it's money from Chinese commodity exports. This would pretty much compound our problems.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules