The opening session of 2016 saw China’s stock exchange fell by 7% on Monday, forcing exchanges to implement the 7% circuit-breaker mechanism for the first time and causing a knock-on effect on stock markets around the world (1).
The Chinese market weakness was due to manufacturing survey data that pointed to more bad news for the Chinese economy. Global market weakness was exacerbated by heightened tensions in the Middle East raising concerns about possible disruptions to oil supply (2).
Trading had been halted by regulators earlier in the day for 15 minutes after the stock market fell by 5%. The market continued to fall sharply following the resumption of trading, leading to the regulators closing the exchange early.
The mechanism to trigger trading suspension following moves of 7% from the previous session was introduced in early December after the stock market’s turbulent sell-off in the summer (3).
“The slump apparently triggered intensified selling, while the triggering of the circuit breakers seems to have heightened panic, as liquidity was suddenly gone and this is something no one has experience before,” analysed Gu Yongtao, a strategist at Cinda Securities (1).
- The Guardian- “China halts trading for day after 7% shares plunge triggers ‘circuit breaker’”. theguardian.com
- The Telegraph- “£30bn wiped off FTSE on first trading day of 2016 as China fears haunt markets” telegraph.co.uk
- The BBC- “China share trading halted after 7% plunge” bbc.co.uk