China’s Stock Market Shuts Down For The Day After Falling Too Far

(AP Photo/Eugene Hoshiko). A woman is reflected on an electronic stock board of a securities firm in Tokyo, Thursday, Jan. 7, 2016.

The Dow fell more than 300 points shortly after trading began Thursday, following a sharp selloff in China’s stock market.

Circuit breakers are like tripwires – when stocks fall by a certain amount, they automatically kick in and halt trading.

More than 30 billion pounds were wiped off British blue chips on Thursday after China allowed its currency to weaken faster than before, rocking global markets and sending commodity shares to their lowest levels for about a decade.

The 7% drop in Chinese markets overnight had triggered a flight to safety, but the circuit breaker reversal helped cut losses in other risk assets, including the United States dollar.

The Dow has already suffered its worst start to a trading year since 2008, and the slump looks set to deepen.

Asian stocks fell to a three-month low on Thursday after China opted to keep guiding the yuan sharply lower, deepening concerns about the economy and the potential for competitive devaluations by other countries.

“Chinese traders are calling for the end of circuit breakers, however they are a positive feature in markets, if they are set very wide”. Worries intensified about China’s economy and whether authorities had lost their grip on the market.

Meanwhile officials and leading financiers warned of the dangers to the global economy and the threat of another unsafe market crash, with the World Bank cutting its global growth forecasts again.

Thursday’s exchange rate of 6.5646 yuan to the dollar was the lowest since March 2011.

China brought in circuit breakers that took effect on Monday to alleviate some of the stomach-churning volatility that convulsed its stock markets last year, but the two trading halts following massive declines in the first week of the year appear to show that the emergency measures have had the opposite effect and made investors more, and not less, nervous, analysts said yesterday. Germany’s DAX slid 2.3 percent, the France CAC 40 gave up 1.7 percent, and Britain’s FTSE 100 lost 2 percent.

China’s stock markets normally open from 9.30am until 3pm, with a civilised 90-minute break for lunch, but this week has seen much shorter sessions in Shanghai and Shenzhen.

Prices also fell in Hong Kong and Tokyo yesterday, and in New Zealand the NZX-50 index closed down 0.8 percent. Investors had panicked they would not be able to sell shares they did not want, rather than being reassured over market stability.

That circuit-breaker was activated twice this week alone.

A 5% move after that prompts a trade suspension until the market closes, while moves of 7% lead to a halt for the rest of the day.

“There was some apparent panic selling with investors trying to reduce exposure before the mandatory triggers entered into effect”, said Gerry Alfonso, trading head at Shenwan Hongyuan Securities in Beijing.