(Bloomberg)
Updated: 2007-06-04 08:48

SHANGHAI: Almost half a million Chinese opened brokerage accounts the day after the government tripled the tax on equity transactions to cool speculation in the world's fastest-growing stock market.

"New investors don't seem to care about the increase in the stamp duty, as they think that's a minor increase," said Yan Ji, an investment manager at HSBC Jintrust Fund Management in Shanghai, which manages $517 million. "If the market continues the fast pace of the rally like before, that may trigger even tougher crackdown measures."

New accounts totaled 426,162 on May 30, the third consecutive day the number exceeded 400,000 and more than this quarter's daily average of 300,000, according to figures from China Securities Depository & Clearing. The number of brokerage accounts reached 101.1 million as of May 30, the figures showed.

Investors are piling into the Chinese market after the CSI 300 index jumped 90 percent in dollar terms this year, the best performance among global equity benchmarks tracked by Bloomberg. The index tumbled 6.8 percent on May 30 after the government raised the stamp duty on stock trading to 0.3 percent and slid another 3.2 percent on Friday, for a 4.5 percent weekly decline.

"I'm very worried and I don't know what to do," Ge Hong, a 30-year-old Shanghai post office worker said after the government's decision. "It's a sudden blow to me." Ge said that she had lost 2,000 yuan, or $262, in the May 30 slump, more than half a month's salary for the average postal worker in the city.

The central bank raised interest rates earlier this month, for the second time this year, encouraging people to save rather than invest in stocks. Brokerages were ordered to make investors sign a declaration acknowledging the risks when opening accounts.

The CSI 300 is valued at 45 times reported earnings, while multiples in Japan and India - Asia's next most expensive markets - are at 23 times.

Meng Boqiang, an employee at Toshiba Management in Shanghai, sold all of his holdings this week after the value of his investments fell by 60,000 yuan.

"I expect the market to drop by at least 30 percent," Meng said.

Mark Mobius, who oversees about $30 billion as managing director of Templeton Asset Management, said in an interview last week that a 30 percent decline would be "healthy" for the Chinese market.

A larger drop would cause retail investors to lose more money and could spark unrest, said Fraser Howie, a co-author of the book "Privatizing China: The Stock Markets and Their Role in Corporate Reform." Jiangsu Wuzhong Industrial, Ningbo Fuda and Hong Yuan Securities all fell 19 percent last week.

Since the start of May, Chinese central bank officials, the former chairman of the U.S. Federal Reserve, Alan Greenspan, and Li Ka-shing, Asia's richest man, have all warned of a looming correction.

"I don't dare sell," said Li Shi, a retired factory worker, who was tracking prices at Tiantong Securities' Chaoyangmen branch in central Beijing last week. "I've invested my entire life savings in the stock market."

Li bought shares of the property developer Beijing Centergate Technologies in April, making a paper profit of 10,000 yuan before last week. The shares rose 3.8 percent Friday after slumping 8.3 percent Thursday and the maximum allowed 10 percent the previous day.