Market Falls Steeply on Government Hints
June 04 2007:
The Chinese stock market closed more than 8% lower today amidst concerns that the government will take further action to take the heat out of the economy, including a capital gains tax.
An article in the government owned China Securities Journal rang alarm bells in the markets when it said that the rate at which share prices had risen "extremely unusual" and underlined what it described as the "structural bubbles" in the market. Many traders took this as a hint that it was time to get out of the market, in the short-term, at least.
The benchmark Shanghai composite share index closed 330.34 points or 8.26% down at 3,670.40.
Many listed companies listed fell by more than the 10% limit. Air China and Huaneng Power - China's largest electricity producer were among the worst hit.
"Investors are still panicking about recent market talk that the government might levy capital gain taxes," said Wang Jun, of Merchants Securities.
"In any event many can still sell their holdings and make a big profit," he added.
Despite the drop, some analysts say investors would be better to keep their money in the market. Even if the government does increase taxes, this will not halt the long-term rise in the value of China's stocks.
