Chinese authorities for the first time closed the Shanghai and Shenzhen stock exchanges early under a “circuit breaker” mechanism to curb volatility after shares fell seven per cent Monday, raising concern over their commitment to market openness.
China’s stock indices plummeted in mid-2015 as a debt-fuelled bubble burst, sending ripples through global exchanges and wiping trillions from market capitalisations.
The falls prompted wide-ranging intervention by Beijing to prop up share prices.
The measures are estimated to have cost hundreds of billions of dollars, but worked – Shanghai ended the year up 9.4 per cent, while Shenzhen soared more than 63 per cent.
Even so the markets remain volatile – Shanghai saw a five per cent daily fall as recently as November. As part of their efforts to prevent a repetition of the rout, authorities instituted the “circuit breaker” system from Monday.
Under it, a five per cent drop in the CSI300 index, which covers both bourses, triggers an automatic 15-minute trading halt. A fall of seven per cent means the two exchanges are closed for the rest of the day.
But analysts said the “circuit breaker” risked interfering with market efficiency and could even prove counter-productive, heightening volatility instead of reducing it.
“The mechanism is merely a tool and it won’t help the market find its true value,” Northeast Securities analyst Shen Zhengyang told AFP. “With or without the system, the market will continue to drop further if selling pressures piles up.”
“What worries me the most is the enforcement of the system will also hurt market liquidity,” he added. “Investors who want to sell can’t, and those who want to buy also can’t. Trading will dry up if it gets triggered too many times.”
Global markets stuttered Monday as a flare-up in tensions between Iran and Saudi Arabia raised concerns about the volatile Middle East. But the Chinese falls followed poor data from official and private surveys of manufacturing activity in the world’s second-largest economy.
In addition, a ban preventing shareholders with holdings of more than five per cent in a company from selling shares – introduced in July to help defend prices – is due to expire on Friday, triggering fears of a sell-off.
By Monday’s early close the benchmark Shanghai Composite Index had tumbled 6.86 per cent, or 242.92 points, to 3,296.26.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, slumped 8.22 per cent, or 189.75 points, to 2,119.16.
Hong Kong closed normally but the Hang Seng Index was down 2.68 per cent, or 587.28 points, at 21,327.12.
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