China Stock Market Shuts Down After Share Plunge Drama

China’s response to the summer market crash was seen by many inside the industry as heavy handed, as it included suppression of futures and derivatives markets and instilled fear as regulators pulled in brokerage executives for questioning about insider trading and “malicious short-selling”.

The CSRC also said it would further improve the circuit breaker mechanism after some analysts blamed the tool for inadvertently fueling the sell-off.

At the beginning of stock trading in 2016, the markets saw a 7-percent plunge in the benchmark Shanghai Composite Index, prompting the stock markets in Shanghai and Shenzhen to halt trading for the remainder of Monday.

Dai added that the circuit breaker would embolden market bears, as they did not have to worry about a late-session rebound.

The world’s second-largest stock market began the year on a down note after data showed manufacturing contracted for a fifth straight month and investors speculated that the end of a ban on share sales by major stakeholders may come as soon as this week.

“I think the circuit-breaker system is useless, the market will slump anyway”, said Zhou Junan, a 22-year-old retail investor, who said he’s holding back from buying stocks until later in the year.

At the start of July, major shareholders in Chinese companies were banned from selling their stakes for six months. “This mechanism limits liquidity in the market and causes share prices to move up or down more quickly and easily”.

Unlike some measures to calm the $US6.5 trillion equity market over the summer, Chinese authorities sought input from market participants when the circuit-breaker proposal was unveiled in September. Traders said the halts took effect as anticipated without any major technical problems.

Initial markets in China opened down 3% today before recovering in mid afternoon trade, yet finishing lower.

Signs of steadying in mainland markets also soothed jangled nerves in Hong Kong, where the Hang Seng index was little changed after a 2.7 percent drop on Monday.