Tags: china | fees | beijing | market

China Cuts Fees, Urges Share Buybacks to Revive Ailing Market

Thursday, 02 August 2012 07:19 AM

China's securities regulator stepped up efforts to restore confidence in the country's sagging equities markets on Thursday, making another round of cuts to transaction fees and encouraging companies to buy back their own stock.

The China Securities Regulatory Commission (CSRC) said that it will cut transaction fees applied to stocks and futures trades, the third in a series of similar cuts since April.

The statement said combined savings from the three rounds of cuts would total 15.5 billion yuan ($2.43 billion) in trading fees this year.

The regulator is also actively working with other ministries to possibly lower stamp duty, state radio cited the CSRC as saying at a news conference on Thursday. China scrapped stamp duty for stock buyers in September 2008, but left the charge unchanged at 0.1 percent for sellers.

The CSRC has also encouraged firms whose share prices have fallen below their net asset value per share to buy back their shares, an official newspaper reported on Thursday. Such share buybacks usually result in increased valuations of outstanding shares by reducing net supply.

But the Shanghai Composite Index (SSEC), which has slumped to 3-1/2-year lows, did not react positively to the share buyback proposal, extending declines on Thursday.

The SSEC has tumbled around 14 percent over the last three months, giving up all of its gains for the year as the global economy staggered again on bad news from Europe.

Analysts are now concerned Chinese equity markets could close out 2012 in negative territory for the third year in a row, even as the country prepares for a sensitive once-in-a-decade leadership transition.

In this environment, investors appear increasingly unreceptive to expressions of rhetorical support from regulators, clamoring instead for looser monetary policy and a freeze on initial public offerings, neither of which appears to be on the cards at present.

"I think the market is getting a bit numb to what the CSRC is trying to do," concurred Chen Yi, a Shanghai-based analyst with Xiangcai Securities.

Given weak fundamentals, including profit warnings by listed firms, investors are not paying much attention to investment advice from government officials, said Zhang Yanbing, a securities analyst at Zheshang Securities in Shanghai.

"The simple reason is, the market is on a downward slide due to macroeconomic conditions and problems in Europe,"

As for the cuts in transaction fees, it is unclear whether the projected savings will be passed on to investors or retained by brokerages. Nor do they appear sufficient to offset statements such as those made by China's central bank on Thursday expressing concern that the global economy might slide back into recession.

"A slew of fee cuts will surely be positive for the stock market, but the market's performance is affected by the combination of many factors, such as economy and corporate fundamentals," said Zhang Qiwei, analyst at China Economic and Business Monitor in Shanghai.


Other market players said investors suspect that regulators are pushing "blue chips" to help prop up favored firms.

An unidentified CSRC official was quoted by the Shanghai Securities News as saying companies whose shares are trading below net asset value per share with growth potential and strong finances have "greater obligations" to consider a buyback.

There are 71 mainland-listed companies whose share price is currently trading below net asset value per share, including blue chips such as Shanghai Pudong Development Bank, China Communications Construction Co Ltd and China Railway Group Ltd, according to the report.

The latest statements are part of a campaign launched by the CSRC earlier this year to encourage investors to pick up shares in high quality blue chips, which it said are trading at a discount.

Guo Shuqing, the country's top stock market regulator, started the campaign in mid-February when he told a conference that the country's blue chip stocks offer "rare investment value" at current prices.

He predicted that investment in China's top companies could yield returns of 8 percent a year, based on an average PE ratio he estimated at 11 times forecast earnings.

© 2020 Thomson/Reuters. All rights reserved.

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Thursday, 02 August 2012 07:19 AM
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