China will suspend stock market “circuit breakers”

Major Chinese stocks today bottomed out after the securities regulator made a decision to terminate the controversial “circuit-breaker” mechanism that has halted trading twice this week, including after an abrupt sell-off yesterday that led to heavy losses and spooked global markets.

Previously, pre-initial public offering shares held by major shareholders and principal officials were locked up from trading on the secondary markets for at least a year, but could be freely traded once the lock-up period ended, subject only to the disclosure rules of the Shanghai and Shenzhen bourses.

With the circuit breaker deactivated, the CSI300 index was up 1.75 percent at 3,351.97 points in morning trade on Friday, while the Shanghai Composite Index was up 1.9 percent to 3,185.67 points by 0230 UTC.

Earlier on Thursday, China’s stock markets were suspended for the day less than half an hour after the open as the mechanism was tripped for the second time this week. The new rules are aimed at “preventing concentrated share reduction” and “stabilizing market expectations”, the statement said.

Singapore’s benchmark Straits Times Index lost 74.36 points or 2.65 per cent to 2,729.91, its lowest close since January 2012.

The big factor on Thursday was the further depreciation of the Chinese currency by the People’s Bank of China, with the official midpoint rate set 0.5 per cent weaker than Wednesday, he added, but the biggest driver of the falls on both Monday and Thursday may well be the circuit breaker policy itself. In Europe, the CAC in Paris fell 1.7 percent while London’s FTSE dropped 2.7 percent.

Those who want to reduce their holdings should publish their plans 15 trading days beforehand.

A lower unit should make Chinese exports more competitive on world markets, but at the cost of its imports becoming more expensive in yuan terms.

Lowered expectations in the capital market also resulted in a steep fall in the yuan exchange rate.

Selling pressure increased in line with a slide in the yuan which fell to its lowest level since February 2011.

The circuit breaker mechanism is created to calm investors, but not to control fluctuation range of the indices, Hu Xiaohui, a researcher at the securities institute of Tencent said.

Baader Bank head of equity strategy, Gerhard Schwarz, said suspending the circuit-breaker was a smart move because investors were now less nervous about not being able to sell.