The earthquake in southwestern China on May 12 saw the Shanghai Composite Index (SCI) slip 1.8% to 3,560.24 points the following day. As a temporary measure, trading recommenced without 66 Sichuan- and Chongqing-based companies with operations close to the affected area.
According to reports, the China Securities Regulatory Commission (CSRC) was sufficiently worried by the post-quake decline that it asked fund managers not to jettison their shares. The SCI rose 2.73% on May 14.
Three weeks previously, investors were treated to a dose of far more proactive regulatory action. During afternoon trading on April 22, the SCI fell below 3,000 for the first time since March 2007.
A day earlier, the CSRC had moved to ease the selling pressure created by the non-tradable share reform program. It ordered companies to sell newly-tradable shares through privately-negotiated wholesale transactions if the number of shares sold exceeded 1% of a firm’s total share capital.
Acknowledging that this measure hadn’t worked, the regulator upped the ante. On April 23, stamp duty – the tax imposed on trades made on mainland stock exchanges – was cut from 0.3% to 0.1%. This reversed a tripling of the stamp duty in May 2007.
In response to the stamp duty cut, the SCI posted its biggest single-day gain in seven years on April 24, closing up 9.3% at 3,583.03 points. Hong Kong also benefited from Shanghai’s surge, the Hang Seng Index closing up 1.5% at 25,680.78, a three-month high.
However, some analysts were skeptical about the long-term sustainability of the rebound.