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Possible China Auto Tax Cuts See Auto Stocks Rise And Rally

Possible China Auto Tax Cuts See Auto Stocks Rise And Rally
News filtering in from the largest car market in the  world China, that the authorities there can bring down its car sales taxes by fifty per cent saw a rally in the beleaguered auto stocks which was led by the likes of General Motors and Ford Motor.
 According to media reports quoting sources from China, the authorities there are concerned about the recent slump in auto sale s in the country and therefore the top economic planning of the country is reportedly planning to bring down the tax on cars to 5 per cent. Last month there was sharp drop of 11.6 per cent in car sale at 2.39 million units while the economy is fighting a bitter trade war with the United States and a gradually slowdown in the Chinese economy. The car sales in China has seen record periods of growth for almost two decades and if the current market trends continues, this year could the first in a long time that the market there would see a slowdown in the car sale growth.
Reports said that the tax cuts being contemplated would be applicable for cars with engines up to 1.6 liters which makes up about 70 per cent of all the passenger car that were sold in the market last year.
Reports further said that while a plan for the slashing of taxes has been submitted by the National Development and Reform Commission of China, no final decision has been taken.
The news resulted in an increase of 1.5 per cent in the shares of GM which at one time surpassed its 50-day moving average for the first time since July. The shares of Ford moved past its 50-day line for the first time since September with an increase of 3.3 per cent. The shares of Fiat Chrysler however remained flat while Tesla noted a 1.8 per cent increase in its share value – adding on to its rise last week. There was a slight rise of 0.8 per cent in the shares of Volkswagen, which saw China account for almost 40 per cent of its total vehicles sales. There was also slight increase for luxury European car makers – with a presence in China, BMW and Daimler.
Auto parts industry also saw an increase in value on the news of a potential China tax cut. Shares of Visteon rose 2.3%, Adient 5.4%, Aptiv 3.4%, BorgWarner 4% and Delphi Technologies by 2%.
Analysts at RBC said the auto industry could be expected to rally, "especially given recent negative sentiment and the potential for short covering." On earlier occasions, the analysts had said that the most likely catalyst for the industry was potential China stimulus.
They added that GM, Aptiv, Adient, Lear, Visteon and Garrett Motion are among the auto companies that are the most exposed to the Chinese market. However, there was cautious optimism about the potential action in China.
"Such a tax cut would likely be over the next 6 months or so," RBC analyst Joseph Spak wrote.
(Source:www.investors .com)

Christopher J. Mitchell

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