Listed banks are likely to be popular on the domestic stock market after the Ministry of Finance tripled stamp duty on share transactions to dampen rampant speculation, analysts said.
Last Tuesday night, the Ministry of Finance tripled the stamp duty on share transactions from 0.1 percent to 0.3 percent in a surprise move. The tax increase immediately hit on the market as the barometer Shanghai Composite Index tumbled 6.50 percent to 4,053.09 on Wednesday.
However, all Shanghai-listed banks, led by mid-sized China Merchants Bank and China Minsheng Banking Corp, rose against the benchmark index on Thursday, and triggered expectation of more interest in big caps as the stamp duty increase drove out speculators.
Merchants Bank gained 8.22 percent on Thursday and kept a rise of 1.61 percent on Friday, rising above its slump of 6.21 percent on Wednesday.
"The stamp duty is targeted at those who trade stock frequently just for speculation, such as retail investors who buy shares in one company today and sell the shares tomorrow," said Qiu Zhicheng, a Haitong Securities Co analyst. "People tend to hold on to stock in listed banks, which are not subject to wild fluctuation."
Banks rarely show price spikes in their shares, so the attraction of making quick money is limited, although there is less risk of losing money.
That's why some retail investors would rather shun bank shares and pick up other sectors.
Lao Guo, a 53-year-old retiree, sold her holdings in Merchants Bank a month ago because the lender moved "too slowly when compared with other shares," she said.
"I know Merchants Bank is a good investment choice but not my first choice," she said before the stamp duty increase. "However, why should I overlook other opportunities to make money quickly and await slow gains?"
She was surprised at the bank's strong performance after the tax increase.
Qiu said the banking sector was not the target of the latest regulatory move, which is why banks' market performance will not be deeply affected by the stamp duty increase.
She Minhua, a China Securities Co analyst, echoes his view.
"The banking sector is likely to be the next hot runner in trading, with sentiment returning to reasonable," She said. "Bank shares are more for investment, unlike other shares for short-term profit-taking on speculation."
Most Shanghai-listed banks gained less than the broad market this year, with Shanghai Pudong Development Bank and Huaxia Bank as exceptions.
Haitong's Qiu rates mid-sized banks like Merchants Bank and Minsheng Bank as most valuable and rates them a "buy."
Advisers rate most listed banks as "undervalued" in a "safe-to-invest" status, except newly listed China Citic Bank and Bank of Communications. Citic Bank has risen 15 percent since its yuan-backed A shares were listed on April 27. BoCom has dipped 5.6 percent since its A-share debut on May 15.
Citic Bank is rated as over-valued while BoCom is rated as "cautious buying" by Yahoo finance.
"The banking sector is always a good middle-term investment product," said Wu Kan, a Shanghai Securities Consulting Co analyst. "For those investors who don't want to take big risks in the stock market, banks will be good choices."
Chinese investors opened 426,162 brokerage accounts on Wednesday, well above the daily average for the year, hard on the heels of the stamp duty increase.
This quarter's daily average was about 300,000, according to figures from the China Securities Depository & Clearing Corp.
Authorities have taken various steps to cool a rally that has turned Chinese stocks into Asia's most expensive.
(Xinhua News Agency June 5, 2007)