More Choppy, Speculative Trading Seen for China Market

Friday may see more choppy trading after Thursday's speculation-fueled trading session.


Investors betting on banks to benefit from likely monetary easing squared off with those dumping property stocks on fears Beijing would impose fresh housing curbs.

The Shanghai Composite Index ended 0.57 percent lower at 2111.18. The property-heavy Shenzhen Component Index lost nearly 2 percent.

Market Factors:

The Ministry of Housing and Urban Development denied speculation that pre-sales of property would be scrapped. Chinese property stocks tumbled Thursday due to rumors that Song Guoqing, a central bank policy advisor, said Beijing was considering banning property pre-sales to cool the housing market. Analysts said pre-sales are unlikely to be stopped in the short term as developers would come under tremendous financing pressure, but their cancellation may be a future direction.

China will cut stocks and futures trading fees further from September. The latest fee cuts, combined with earlier reductions, will equal yearly savings of 15.5 billion yuan ($2.4 billion) based on 2011 turnover.

The securities regulators also said they are working on lowering stamp duty for stock trading. In 2008, when regulators slashed stamp duty to rescue slumping markets, the reaction was euphoric — stocks rose more than 9 percent the following day. China collected 44 billion yuan ($7 billion) of stock trading stamp duty last year.

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," he said.

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.

Stocks to Watch:

China South Locomotive - The country's largest rolling stock manufacturer has won a 2.5 billion yuan ($395 million) contract to build trains for the subway in Ankara, Turkey, according to Caixin media. It's the biggest European deal won by a Chinese railway equipment manufacturer. China South also plans to build a manufacturing plant in Turkey to localize production.

Coming Up This Week:

FRIDAY: Indian HSBC Services PMI, Indian Foreign-Exchange Reserves

—By Cheng Lei, Special to; Reuters contributed to this report