Chinese stock markets halted after shares see sharp drop

SHANGHAI - Agence France-Presse

AFP Photo

Trading on the Shanghai and Shenzhen stock exchanges was ended early on Jan. 4 after shares fell 7 percent, the first time China’s new “circuit breaker” intervened to curb market volatility.

The drop in the CSI300 index, which covers both bourses, for the first time triggered an automatic early closure under the new system, after an initial 15-minute trading halt failed to stem the declines.

The falls followed poor data from official and private surveys of manufacturing in the world’s second-largest economy. In addition, measures introduced to curb China’s mid-2015 share slump are about to expire.

The trading halt mechanism, dubbed a “circuit breaker,” went into force on Jan. 4, the first trading day of 2016.     

Under the system, intended to reduce wild swings on the Chinese markets, a five percent drop in the CSI300 index sees trading suspended in both Shanghai and Shenzhen for 15 minutes before resuming.

If the index falls 7 percent the markets are closed for the rest of the day.

The slumps were triggered by a combination of market factors and fundamentals, analysts said.

“The market is worried about the upcoming lifting of the rule that bans shareholders from selling,” Central China Securities analyst Zhang Gang told AFP.

“The pressure will continue to weigh on the market in the following days.”   

China banned shareholders with holdings of more than five percent in a company from selling shares in July as part of efforts to stem a rout that wiped trillions off market capitalizations. The ban will expire by the end of this week, triggering fears of a big sell-off by major shareholders.

At the early close the benchmark Shanghai Composite Index had tumbled 6.85 percent, or 242.52 points, to 3,296.66 on turnover of 240.9 billion yuan ($37.0 billion).

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, slumped 8.19 percent, or 189.01 points, to 2,119.90 on turnover of 355.3 billion yuan.

Official and private Purchasing Manager Index (PMI) surveys of manufacturing activity both showed contraction, heightening concerns over the health of the key sector.

China on Jan. 4 also cut the yuan’s value against the greenback, making it weaker than 6.5 for the first time in more than four-and-a-half years, as pressure on the unit mounts from the country’s growth slowdown.