Chinese stocks nosedived on Thursday, triggering the second daylong trading halt of the week and sending share markets, currencies and oil prices lower as investor jitters rippled across Asia.
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Shares in Singapore today (Jan 8) recouped some of the week’s earlier losses, led by the gains in Chinese stock markets after regulators there suspended the circuit breaker mechanism and raised the guidance rate for the yuan for the first time in nine trading days.
The official Xinhua news agency said Thursday that trading on the Shanghai and Shenzhen stock exchanges was frozen for the day after shares tumbled more than 7 percent. The mechanism is created to halt free-falling prices by stopping trading if stocks fall by 7 percent.
The turbulent start to the new year has left China with a weakened yuan, trading at a record low against the USA dollar.
“The government hopes to see the yuan depreciate to stimulate exports and the economy, but the speed of depreciation went too fast”, said analyst Zhang Gang of Central China Securities.
According to the new rule, controlling shareholders and managers who hold more than 5 percent of a company’s shares were ordered not to sell more than one percent of their holdings within three months.
The Shanghai Composite Index gained about 3 percent when it opened but quickly surrendered those gains to be down 1 percent at 3,096.82.
Hugh Young, a managing director at Aberdeen Asset Management, commented that the PBOC’s intervention is counterproductive.
It’s mostly a domestic fight: Foreign investors pretty much fled the market this summer, as Beijing’s heavy-handed attempts to prop up plummeting markets flooded them with over $1 trillion in stimulus.
The yuan’s link to the dollar meant it soared as the USA currency climbed over the past year, making it overvalued by 10 to 15 per cent against those of other developing countries.
Booth said that the Chinese government should allow the market to find its own level and that “the continual interference in the market is part of the reason for the boom”.
Despite reassuring statements by the central bank and stock regulator before midday, worries about how Chinese authorities would address the volatility exacerbated selling.
The sell-off came as Chinese stocks fell again after the People’s Bank of China set the yuan’s daily reference rate at the lowest level since April 2011.
But global markets reacted with an equities rout as concerns grew.
“The efficacy of the circuit breaker is questionable in a highly volatile environment driven by a herd mentality”, noted Kamel Mellahi of Warwick Business School, according to CNN Money.
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China’s circuit breaker mechanism follows the Hushen 300 Index, which reflects the performance of bluechips listed in Shanghai and Shenzhen.
