Trading on China’s stock market finished early on Monday after heavy losses triggered a new “circuit breaker” mechanism for the first time.
China’s blue-chip stock index, the CSI 300, suffered its worst day in four months in the year’s first trading day, falling 7 per cent on Monday.
In Shenzhen, where 1,783 stocks are listed, nearly 1,100 declined between 9.8 per cent and 10 per cent, the downward limit for individual stocks. only 30 stocks gained (and yes, because this is China’s market, 17 stock hit the upward limit of 10 per cent).
In Shanghai, where 1,119 stocks are listed, only nine stocks rose. A little more than 500 stocks fell between 9.8 and 10 per cent.
All 10 sectors in both markets fell. In Shenzhen, the ranges were from -7.5 per cent for consumer staples and -10 per cent for telecoms. In Shanghai, the range was from energy stocks falling 4.8 per cent to IT stocks shedding 8.9 per cent.
Stocks around Asia fell in afternoon trading, in tandem with the sell-off in China.
Among the possible culprits, via Gabriel Wildau in Shanghai:
* A factory survey released on Saturday showed China’s manufacturing sector shrinking for a fifth consecutive month in December.
* Investors are also nervous about the imminent expiration of a ban on stock sales by large shareholders. Regulators imposed the ban in early July at the height of the market rout that at one point had wiped 45 per cent off the value of the Shanghai market.
Regulators introduced the circuit breaker in a bid to curb panic selling after a series of big one-day losses during the summer rout. The mechanism comes on top of existing rules that halts trading in individual shares if they rise or fall by at least 10 per cent in a single day.
Despite heavy volatility, the Shanghai composite ended 9.4 per cent higher in 2015 after large-scale buying from state-owned financial institutions — known as the “national team” — fuelled a recovery from the low point touched in late August.
Now, however, investors are worried that the unwinding of emergency rescue measures could place fresh pressure on the market, even as corporate earnings remain weak.
The securities regulator halted large-scale share purchases in late August, though it pledged to maintain existing holdings indefinitely. Initial public offerings resumed last month after a halt imposed in July. And the regulator has also rescinded a ban on net share sales by securities brokerages’ proprietary trading units.