Shares fall 3.5% as new moves seen inadequate
Print Edition
FOLLOWING stock plunges stretching back more than two weeks, regulators’ new measures aiming to restore market confidence seem to have been insufficient.
Yesterday, the Shanghai Composite Index followed Wednesday’s drop of 5.23 percent with another dive of 3.5 percent, although analysts and investors had wished for a rebound after the roll-out of regulatory measures.
The decline dragged the index down to 3,912.77 points, a new low since April 3, with the plunge from June 15 to yesterday hitting 24.29 percent.
After the tumble on Wednesday, the Shanghai and Shenzhen stock exchanges were the first to act, announcing a roughly 30 percent cut in stock transaction fees, which account for a very small portion of the total fees for stock trading.
In addition, the China Securities Depository and Clearing Co announced that it will cut stock transfer fees by about 33 percent from August 1.
However, the cuts fell short of general market expectations for a cut in the securities stamp tax. This has proved to be a direct and effective approach to lift confidence, at least in the short term.
When stamp taxes were cut twice in 2008, the Shanghai index surged by more than 9 percent on both occasions.
Li Xunlei, chief economist with Haitong Securities, said that although the new move will reduce some transaction fees, the government may still cut stamp tax, which is fixed at 0.1 percent presently, higher than the current brokerage fee at 0.03-0.08 percent.
Compared with a 0.03 percent brokerage fee offered by most securities brokerages, there is still much room for lowering the stamp tax, Li said.
“Lowering the stamp tax is both highly necessary and probable,” he said.
Margin trading eased
Late on Wednesday, the China Securities Regulatory Commission also made its move by amending previously strict rules on brokerages’ margin trading business.
It canceled the rule stipulating that investors should pay an additional guarantee within two trading days if the collateral ratio falls below the 130 percent liquidation line, and allowed brokerages and clients to negotiate the term and percentage of the extra guarantee, instead of facing forced liquidation.
The amendment also gave investors with below 500,000 yuan (US$80,618) in securities assets, a previous minimum level for conducting margin transactions, the nod to continue.
Margin trading allows investors to buy securities with cash borrowed from brokerages using other securities as collateral, or sell short with stocks borrowed from brokerages. Forced liquidation will happen if an investor’s account fails to meet margin trading requirements.
The recent plunges have frequently been blamed on massive forced liquidation of margin trading or similar activities.
Earlier this week, the China Securities Finance Corp, which provides margin trading services to securities brokerages and monitors the health of the business, said the amount of forced liquidation for margin trading by brokerages was small, and its pressure test showed the collateral ratio for those margin transactions was higher than the early warning line of 150 percent.
The associated risks are still controllable, it said.
Chen Bing, head of the margin trading department of the Shenzhen-based Guosen Securities, said the CSRC’s measures demonstrate its determination to ensure market confidence.
The recent volatility has cut the collateral ratio of some investors and the new rules will grant them more room to wait for a rebound, she said.
“I believe a new period of optimism will eventually come after the panic,” Chen said.
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