China’s stock markets endured a volatile month as talk of economic tightening measures and taxes on equity trading dampened investor interest in shares already widely seen as overvalued.
On July 5, the Shanghai Composite Index (SCI) saw its biggest daily drop since the 8.3% decline on June 4, closing down 5.3% at 3,615.87. Analysts blamed uncertainty over government policy for the slump, with investors fearing another interest rate hike or even a capital gains tax on share sales.
As July progressed, the focus shifted to strong company earnings prospects and, on July 20, the SCI crawled back over the 4,000-point line.
The regulators helped push things along, allowing insurance companies to double the proportion of assets they can invest in stocks to 10%.
The real winner in all this was Hong Kong, which roared passed 23,000 points for the first time largely thanks to Beijing easing limits on Qualified Domestic Institutional Investors(QDII).
The key development came on June 21 when mainland securities firms and mutual funds received the permission to invest in overseas securities. The Hang Seng Index (HSI) ended up 1.25% to reach a record high of 21,954.67, in anticipation of Hong Kong receiving the bulk of this money.
With banks already allowed to invest in overseas securities, approval for insurers to follow suit is expected later this year, and this meant the HSI retained its momentum.