Analysts say China’s latest scheme to breathe life into the A-share market will have limited effect, even as the Shanghai Composite Index responded with its biggest gain for a month.
The securities regulator announced on Friday a 20% cut to transaction costs, effective from September 1, which it predicts will eliminate about Rmb600 million ($95 million) in costs for the last four months of the year.
It is the third such cut this year, after similar moves in April and June. Based on last year’s A-share trading volume of Rmb42 trillion, the combined measures could save a total of Rmb15.5 billion annually, according to the China Securities Regulatory Commission (CSRC). But it is unlikely to provide much incentive for investors.
“The fees are included in stockbrokers’ commission charge, so the cut only helps brokerages reducing their costs,” said Fanny Chen, an analyst at Haitong Securities International. “They may not want to pass on the savings to investors, unless for the purpose of retaining big clients. So investors may not benefit from the move completely.”
The move came as A-share trading volume dropped by 46% year-on-year in July. After the latest cut, the stock exchanges in Shanghai and Shenzhen will charge both sellers and buyers a transaction fee equal to 0.0696‰ of the transaction value, while the Shanghai branch of the Depository and Clearing Corporation will set its transfer fee at 0.3% of the trading volume.
Chen reckons Chinese brokerages may not comply with the new rules anyway. “Since average commission rates have declined to such a low level — around 0.79% in the first half of 2012, compared with the official requirement of 8% — we do not expect brokers will scale down their commission rate to the same extent as the decrease in transaction and transfer fees.”
The cuts will not attract a lot of additional capital in the short term, but the regulator’s move to stabilise the stock market will boost investor confidence in the long term, she said.
Since the trading cut was announced on Thursday, the benchmark Shanghai index has climbed 2% and ended at 2,154 yesterday. The market would respond more positively if the authorities cut stamp duty, which accounts for 39% of investors’ trading costs, analysts said.
Chinese policymakers are under pressure to launch measures to revive the country’s languishing stock markets and the weakening economy as a whole. Some critics are also crying out for a stop to new share issuance in the A-share market, but officials at CSRC said that halting IPOs would have limited effect on the secondary equity market.
“Chinese regulators still encourage new share issuances in order to encourage small and medium companies to tap the capital markets,” said Chen.
