The “circuit-breaker” rule, created to stem volatility, was triggered in the first 30 minutes of trading, making it China’s shortest trading day on record. A investor rests near a display board showing the plunge in the Shanghai Composite Index at a brokerage in Beijing, China, Thursday, Jan. 7, 2016.
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China stock markets closed for the day less than half an hour after opening on Thursday when shares fell more than seven percent, triggering an automatic “circuit breaker”. The Shenzhen Composite Index for China’s second smaller stock exchange slumped 8.3 percent to 1,955.88. Investors are also unnerved that Beijing has allowed the yuan to weaken, a possible sign the No. 2 economy is in worse shape than thought.
“The sell-off in Chinese equities we have seen this week only emphasizes the point that the stock market intervention may have only delayed the sell-off”, said Angus Nicholson, market analyst at IG in Melbourne, Australia.
Trading was suspended for 15 minutes after the CSI 300 stock index fell 5%. In the offshore market, where the yuan is traded freely, the yuan fell as much as 0.9%.
In a painful echo of the summer rout that wiped trillions of dollars off valuations, mainland investors ran to the sidelines on growing fears about the world’s number two economy, a key driver of global growth.
On Wall Street, stocks tumbled to three-month lows overnight, as North Korea’s self-proclaimed successful testing of a hydrogen bomb, weak Chinese data and a falling renminbi rattled investors.
The Shanghai benchmark soared in value from the end of 2014 to its peak in June as millions of novice investors bought shares. But it hurts foreign producers trying to sell to the Chinese market because it makes their goods dearer – unless they cut profit margins. When the index moves 5%, trading is automatically halted for 15 minutes, while a 7% move stops trading for the remainder of the session. The trading halt mechanism is based on whether that index swings more than 5 percent up or down. “The market-selling pressure was originally not this heavy”.
The abrupt decline triggered so-called circuit breakers, which Chinese authorities recently implemented in a bid to tame the country’s volatile markets. The dollar gained 0.1 percent against the South Korean won and rose 0.3 percent against India’s rupee.
On Thursday in Asia both contracts fell another 1.6% each.
Meanwhile, Brent crude prices hit new 11-year lows on oversupply concerns, also weighed on investors’ confidence.
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On currency markets, a rush to safe investments hit emerging currencies, while the dollar fell below 118.00 yen for the first time since August before edging up slightly. China’s central bank attributed the yuan’s move to speculators and said it would maintain the currency stable at an equilibrium level.
