7th January 2016
Trading was halted on Chinese stock markets for the second time this week on Thursday when its so-called ‘circuit breaker’ system kicked in to stop dealing after the blue-chip CSI 300 index plummeted by more than 7%.
Dealing was suspended after just 870 seconds – less than 15 minutes.
The circuit breaker, only introduced on Monday, is designed to stop market crashes and halts trading for 15 minutes when the market falls 5% in the hope that investors will calm down.
When trading restarts, a further fall of 2% sees trading halted for the day.
On Monday dealing in China also came to an abrupt and early finish when traders witnessed the country’s Shanghai Composite index drop by 6.9% by 1.30pm local time and its blue chip index, the CSI 300 collapse by 7%.
The market losses have in part been attributed to weak factory survey data released over the weekend and a steadily weakening yuan.
Commenting on the news, Mark Dampier, head of investment research at Hargreaves Lansdown said: “The wider problem is the Chinese economy slowing and the Chinese authorities doing what they can to stimulate growth.
“Investors are nervous of economic slowdown and after losing all the gains we saw in the year to August 2015 the Chinese authorities are trying to prop up the markets with various artificial measures.
“The problems this week are to do with what could happen on Friday, when a ban on short selling and other share sales bans is expected to end – it may be extended – and investors are naturally trying to adjust their positions accordingly.”
Dampier highlighted however that the circuit breaker is having the opposite affect to what is intended and is making things worse as it stops the market having any chance of bouncing.
He noted that had it been introduced during 2015, it would have been triggered 20 times.
Dampier added: “The system doesn’t work and until it is withdrawn or modified we can expect to see further use and perhaps shorter trading periods than we saw last night.
“The interference by the authorities is simply delaying the inevitable. The market needs to find its own level so we will see more volatility in global markets until it does.
“Long-term investors should sit tight. The Chinese market falls are also hurting global markets which look painful in the short term but are beginning to present buying opportunities.”