Could now be the time to buy?
- Thursday, September 18, 2008 9:52 AM SHANGHAI/BEIJING — China unveiled a set of bold steps to bolster its sagging stock market, including scrapping its stamp tax on stock purchases and enlisting a government-controlled agency to buy shares of listed companies.
- The announcement followed a slide in China’s benchmark stock index for a third consecutive session on Thursday to a 22-month closing low, hit by turmoil in the global financial sector that hammered banking shares.
- The Shanghai Composite Index has tumbled more than 20 percent this month and is down nearly 70 percent from its record peak last October.
- “The government has sent a strong signal that it will support the stock market, in particular major banks,” said senior stock analyst Qian Qimin at Shenyin & Wanguo Securities in Shanghai.
- Qian predicted the index would jump at least 5 percent on Friday.
- China will end its 0.1 percent stamp tax on purchases of equities, effective on Friday, although the levy will still apply to sales of shares, state television reported on Thursday.
- The tax had already been reduced from 0.3 percent in April to try to prop up the market, although the benchmark index, after obliging with a sharp rally for a few days, resumed its downtrend the following month.
- Separately, the official Xinhua news agency said Central Huijin, a government-controlled investment agency, would buy shares of Chinese listed companies to help stabilise the market.
- That marks the first time in the nearly 18-year history of China’s modern stock market that authorities have announced share purchases by a central government agency to support the market, although it gave no indication how much it would buy.
- HISTORIC FIRST Xinhua said Huijin, an arm of China Investment Corp, the country’s sovereign wealth fund, would buy shares in three state-owned banks whose shares have fallen steeply — Industrial and Commercial Bank of China, Bank of China and China Construction Bank Corp.
- China Investment Corp was set up a year ago to manage $200 billion of China’s foreign currency reserves.
- The market had failed to find any solace from a surprise monetary easing over the weekend, when China cut the benchmark one-year lending rate and lowered reserve requirements for all but the biggest banks, breaking a two-year tightening cycle much earlier than the financial markets had anticipated.
- Slumping prices for shares and real estate have not only provoked ire among China’s growing urban middle-class, they have also combined with a sharp slowdown in yuan appreciation to raise concerns among policymakers about large-scale capital outflows.
- Although the central bank fretted over speculative funds flooding into the country when stock and property prices were surging last year and its currency steadily rose, it said last month it was now determined to prevent the large-scale flight of capital, as seen in other emerging markets this year.
- But given past failures, the latest moves drew scepticism over whether they could stabilise the market for a sustained period and yank it free of its nearly year-long downtrend.
- “The cut will have a limited impact on the stock market and will not be enough to end the bear market,” said strategist Tang Xiaosheng at Guosen Securities in Shanghai.
- “The major concerns of the market still exist,” he said, citing a slowdown in China’s economic growth and a huge overhang of state-held shares that could be released into the market with the expiry of lock-up periods under shareholding reforms.
- In a move that could address that overhang, the agency that oversees Chinese state-owned enterprises said on Thursday that the enterprises should buy back their shares from the stock market in accordance with their growth needs.
- The state-owned Assets Supervision and Administration Commission said it had always encouraged firms under its aegis to play a role in the stable development of the stock market
We know one thing. Two of the companies we follow, Trina Solar and eFuture are performing well and really are ridiculously cheap. eFuture is profitable, has lots of cash (9M), no debts, and sells at a little over 1xsales.
Trina Solar, at present levels, (a company still growing at triple digit rate), has a 2008 p/e of 8 (and it might be less). These are rather surreal prices. But it’s a surreal world, and there is no guarantee that things will get a little more surreal still. However, we’re sure that a year from now, these prices are looked upon as what we just told you, surreal.