A testing time for China's new circuit breakers

People playing cards in front of an electronic board showing stock information at a brokerage house in Beijing, China, on Jan 4, 2016.
People playing cards in front of an electronic board showing stock information at a brokerage house in Beijing, China, on Jan 4, 2016.PHOTO: REUTERS

BEIJING • The worst start to a year for Chinese shares triggered a trading halt in more than US$7 trillion (S$9.98 trillion) of equities, futures and options, putting the nation's new market circuit breakers to the test on their first day.

Trading was halted at 1.28pm yesterday after the CSI 300 Index dropped 7 per cent.

An earlier 15-minute suspension at the 5 per cent level failed to stop the retreat, with shares extending losses as soon as the market reopened.

The collapse raises fresh doubts about regulators' capacity to wind back heavy trading restrictions implemented after last year's crash in which major indexes tumbled nearly 40 per cent before intervention.

"This is a pretty dramatic start of trading for the year," said Mr Khiem Do of Baring Asset Management in Hong Kong. "Some investors may have been unwinding their positions when trading volumes were light. That could have exaggerated the moves."

Individual investors in China may have rushed to sell after the first circuit breaker took effect to avoid getting stuck in positions by the 7 per cent suspension, said Mr Andrew Sullivan of Haitong International Securities Group in Hong Kong.

It took just seven minutes for the second halt to come into effect as shares tumbled.

About 595 billion yuan (S$130 billion) of shares changed hands in China exchanges before the suspension. The sell-off rippled through regional equity markets.

The performance caused some analysts to doubt the efficacy of the new measure. "Without the circuit breaker mechanism, the market wouldn't have dropped so much," said Mr David Dai of Nanhai Fund Management. "The mechanism deepened investor panic, and limited trading."

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 05, 2016, with the headline 'A testing time for China's new circuit breakers'. Print Edition | Subscribe