Burst or burnish?

30 May 2007 By Martin Hutchinson

While India celebrates its stock market hitting $1tr in capitalisation, China is trying to rein in its own frothy bourse. China s approach is unconventional, but it may end up being much better for the health of its citizens finances.

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Total market capitalisation of Indian stocks hit $1tr on 29th May, according to the Mumbai Stock Exchange. The Mumbai Sensex 30 index is up 6% in 2007, on top of 49% in 2006. It is up 500% since January 2003, trades on 20 times historic earnings and represents approximately 110% of GDP. The Reserve Bank of India has raised its repurchase rate from 6.25% to 7.75% since January 2006

China trebled its stamp duty on share purchases from 0.1% to 0.3% on 29th May; the following day Chinese stocks dropped 6.5%. Before the drop, the Shanghai market was up 60% in 2007, on top of a 130% rise in 2006. The market is up 300% since January 2003, trades on more than 40 times historic earnings, but represents only 25% of China's GDP. China is now believed to have 100m stock brokerage accounts. Since January 2006 the People's Bank of China has raised its benchmark lending rate from 5.58% to 6.57%.

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