China Exporting Wealth & Dropping Investor Tax

April 24, 2008 by Douglas A. McIntyre

There were two things that happened in China, both of which should be loved by U.S. and most country investors.

First and foremost, China saw a rally in Shanghai by more than 9% on the local markets after the Chinese lowered a stock trading tax from 0.3% down to 0.1%.  MarketWatch noted that this was meant to take some air out of its market last year after major surges had been seen.  After the Shanghai market had fallen by 50% from highs, they probably decided to keep confidence from eroding further and declare "mission accomplished." 

The second issue is that China’s sovereign wealth fund, The China Investment Corporation, has kicked up the amount it can invest in entities and assets abroad.  According to a report out of the FT (and elsewhere), China‚Äôs $200 Billion sovereign wealth fund now has about $90 Billion to purchase assets and entities.  Initially it had about $66 Billion, but the government decided it would need less to restructure its Agricultural Bank of China, its China Development Bank and its other struggling state-owned financial institutions.

It looks like the funds will mostly be given to external managers for foreign equities, fixed-income, and in alternative investments that pertain to private equity funds, hedge funds and possibly commodities.

The ordinaries market in Shanghai rallied some 9% today.  The extra sovereign wealth funds will be good for whichever country those funds end up in, while the U.S. and other countries might want to note what taking out "transaction costs" can do for investor confidence.

Jon C. Ogg
April 24, 2008