Shanghai shares closed higher Friday after authorities reversed course and suspended a new “circuit breaker” mechanism that had fuelled a global rout by twice automatically closing Chinese markets early. When the index rises or falls by 5 percent, the circuit breaker imposes a 15-minute suspension in trading.
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The Standard & Poor’s 500 index rose 11 points, or 0.6 percent, to 1,953.
He said the mechanism “is not the major reason for the market plunge, but it failed to achieve the anticipated effects”, adding that the mechanism in effect accelerated the plunge as some investors chose to sell when the index’s drop neared five percent or seven percent.
Chinese government measures introduced previous year to prop up share prices after a meltdown in June are being gradually withdrawn, leading to volatile trading. But it could hurt foreign currency borrowers and suggests that China’s economy is in far worse shape than official data indicate.
China’s central bank was suspected of intervening in trading to support the yuan via state-owned banks, traders said on Friday.
The extreme swings in Chinese markets this year have revived concern over the ruling Communist Party’s ability to manage an economy set to grow at its weakest pace since 1990. China set up a new yuan index composed of 13 currencies in December, saying that the yuan’s performance shouldn’t be measured against the dollar alone. Ten-year yields dropped below 0.50 per cent for the first time in over a month.
In Europe, France’s CAC 40 was down 2.8 percent at 4,353.76 and Germany’s DAX slid 3.5 percent to 9,858.15. Britain’s FTSE 100 fell 1 percent. The benchmark index in Shanghai gained 2 percent.
“Under the circuit breaker mechanism, the market was suffocated”. The People’s Bank of China cut interest rates and regulators suspended new share listings and threatened to jail short sellers, or traders who bet that stocks will fall.
“After today’s low opening there was some apparent panic selling with investors trying to reduce exposure before the mandatory triggers”, said Gerry Alfonso, trading head at Shenwan Hongyuan Securities in Beijing. “They’re trading on fear that Chinese growth is going to collapse and that these lower oil prices are going to lead to a growing number of defaults in the high-yield bond market”. Japan’s Nikkei 225 index lost 1 percent, and South Korea’s Kospi fell 0.3 percent.
Hong Kong’s Hang Seng shed 3.1 percent to 20,333.34 and Australia’s S&P/ASX 200 retreated 2.2 percent to 5,010.30. Brent crude, a benchmark for worldwide oils, fell $1.14, or 3.3 percent, to $33.09 a barrel in London.
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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. Other regional currencies followed the yuan down as markets began to worry about competitive currency devaluations from trading partners.
