Chinese shares jump higher in volatile trade

Trading in Chinese stock markets halted for the second time this week as the CSI 300 Index fell more than 7%.

Year 2016 has started with a series of warning signs about China’s economy, the second-largest in the world and a major driver of global growth. The Standard & Poor’s 500 index lost 21 points, or 1.1 percent, to 1,969. The Nasdaq fell 146 points, or 3 percent, to 4,689.

This comes after the Chinese stock market witnessed its shortest trading day on Thursday.

The onshore yuan recovered to 6.5887 in morning trade, while the offshore yuan was about 1.4% weaker at 6.6798, narrowing a spread that reached around 2% a day earlier, making the central bank’s currency management task more complicated. Within the first 30 minutes of trading it plunged more than 7 percent triggering the circuit-breaker mechanism.

As investor confidence grew on the new measures on Friday, the benchmark Shanghai Composite Index and the Shenzhen Composite Index, which tracks stocks on China’s second exchange, both opened more than two percent higher on Friday. Companies listed in Shanghai now trade at 13 times historical earnings, according to Thomson Reuters Data – well below the average multiple of 20 over the past 10 years.

If the index falls by 5%, the markets are suspended for 15 minutes.

Peter Boockvar, chief market analyst at The Lindsey Group, said removing the circuit breakers could take some short-term pressure off Chinese stocks – but won’t be a cure-all. During an inspection earlier this week in north China’s Shanxi Province, which is known for large coal reserves, Premier Li Keqiang had called for “unyielding effort” to eliminate excess industrial capacity to make way for new growth engines.

But the intervention failed to assuage investor nerves and may instead have added to jitters across the globe, with Wall Street seeing steep falls on Thursday following heavy losses on the FTSE 100 and other European indices. “It’s the Chinese economy that ultimately affects the world markets and the world economy”.

Influential business publication Caixin also quoted social media speculation that the head of the CSRC, Xiao Gang, had tendered his resignation in response to this week’s chaos on the markets, but this has yet to be confirmed.

The Chinese yuan fell to its lowest level compared with the dollar since March 2011, spreading fears about the health of China’s economy. After Thursday’s market plunge, the securities agency tightened that restriction by saying they can unload only the equivalent of 1 per cent of a company’s shares over the next three months.

Investors are also alarmed by the decline in China’s currency. “People now don’t have that same deadline to sell…but China’s stock market is going to go where it’s going to go”, said Boockvar.