Scepticism greets CSRC move to cut trading costs

Investors and analysts doubt the latest reduction in transaction charges will have a positive market impact in the face of a slowing economy and the eurozone crisis.
Scepticism greets CSRC move to cut trading costs

Forlorn investors and stock market analysts have expressed scepticism over the likely impact of moves by China’s securities regulator to further cut stock market transaction fees.

Designed to boost market confidence, the China Securities Regulatory Commission announced last Thursday it would cut fees applied to stocks and futures trades effective from September 1.

This will see charges on A-share transactions on the nation’s two bourses in Shanghai and Shenzhen lowered by a further 20% to 0.00696%.

Meanwhile, cuts in trading fees on commodities exchanges in Shanghai, Dalian and Zhengzhou and the China Financial Futures Exchange will range from 15.5% to 28.57%.

The reduction in A-share transaction costs will be the third in a series of similar cuts the regulator has introduced since April 30.

Charges had just been cut 25% to 0.0087% effective from June 1, while the CSRC halved its administration fee on July 13. It estimates that the total cost saving from the three cuts will be Rmb15.5 billion ($2.4 billion) this year. 

The regulator also pledged to coordinate with other governmental departments to lower stamp duty. China scrapped duty on the buying of stocks in September 2008, although investors are still required to pay 10 basis points for selling shares.

But market participants remain far from convinced that CSRC’s moves will have any meaningful impact on share trading in the face of China’s slowing economy and the eurozone crisis.

A manager at Citic Prudential Fund Management tells AsianInvestor it remains unclear how such savings would be passed on to investors. “We don’t know if the fees are being lowered for stock investors or for brokerage firms,” he says.

Similarly, fund analyst Liu Yiqian argues that while it will likely be positive news for securities firms, it is much harder to say whether it will benefit fund management companies.

“The measure allows brokerages to pay less trading fees to exchanges, which does not necessarily mean securities companies will charge FMCs less fees, at least not immediately,” he reflects.

Certainly initial stock market reaction to the announcement was lukewarm. The Shanghai Composite Index rose just +0.4% to 2,119.58 on Friday morning after the announcement. It closed the day on 2,132.80 (+1.02%).

But that comes after the index touched a three-and-half-year low last Tuesday (2,103.64), with the bourse having sunk 21.6% in a year since it traded at 2,684.04 on August 4, 2011.

The market environment is one in which investors have become increasingly unreceptive to what they see as rhetorical expressions of support from regulators. What they wish for is looser monetary policy and a freeze on initial public offerings – neither of which looks likely soon.

“Nowadays, regulators’ influence on the market is not as direct as before and this measure is not intended to prevent the market from sliding further, but rather to extend some kind of support to investor confidence when the market is panicking,” says the manager at Prudential FMC.

He points out that what investors care about is underlying fundamentals of the companies they are investing in, and in this regard, regulatory signals are of little help.

“The market has a lack of positive factors for support,” he says. “The expectation that China’s economy had bottomed out in the second quarter was proven wrong, and the government keeps reiterating about curbing property prices whenever the real estate market shows some rebound.”

China’s official factory purchasing managers' index (PMI) fell to an eight-month low of 50.1 in July, 0.3 points below market consensus.

The key ingredients for a stock market turnaround are signs that China’s economy is rebounding and eurozone nations finally implement effective measures to solve the continuing crisis, says fund analyst Liu.

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