As markets recommenced activity on the first Monday of 2016 it was a dramatic day for the Chinese CSI300 as a huge drop in the share index triggered an automatic ‘circuit breaker’, halting trading with immediate effect.
The 7% share plunge in the opening session of the year automatically tripped the mechanism which suspended Chinese stock markets, as poor industrial output indicators and a decrease in the value of the yuan added to concerns about the giant Asian economy. It was the first time exchanges have been forced to suspend trade in such a manner.
Around 90 minutes before the end of the trading day in China, following a morning and early afternoon of heavy losses on the CSI300, activity was brought to an early close at approximately 5.30am GMT.
A 15-minute pause in trading had been applied in the afternoon in an attempt to slow the shedding of indexes, which had already dropped 5%, but trading in Shanghai and Shenzhen was again halted after resuming for a brief period in the afternoon.
The automatic ‘circuit-breakers’ designed to alleviate market volatility were in place for the first day and were called into immediate activity.
The CSI300 therefore ended the curtailed day down 7%, the Shanghai Composite Index dropped 6.9% and the Hong Kong Hang Seng Index fell 3%.
Market analysis from a private survey released early on 4th January indicated a tenth consecutive month of slowing industrial activity in China, with a sharper decline in December than previously expected. This followed market reports last Friday indicating a contraction in the activity of larger state-owned businesses for the fifth successive month, adding to worries about the wider Chinese economy.
Speaking to Reuters, a strategist from Cinda Securities commented: “The slump apparently triggered intensified selling, while the triggering of the circuit breaker seems to have heightened panic, as liquidity was suddenly gone and this is something no one has experienced before. It was a stampede.”
