The turbulent start of the year for markets which was largely attributed to the landslide in the Chinese stock markets is making headlines, causing headaches and makes all financial news coming from China particularly relevant and important.
Closely monitoring developments is imperative for all traders, be they engaged in forex, binary options or other forms of trading. With this in mind, it is interesting to note that according to the official news agency of the People’s Republic of China, Xinhua, as from today the Chinese authorities have decided to suspend the stock market “circuit breaker” mechanism that has been implemented since the beginning 2016.
More specifically, this mechanism that was put in effect on 1st January in order to tame the wildly fluctuating Chinese stock market, had entailed the halting of trading for 15 minutes if the Hushen 300 Index, which reflects the performance of bluechips listed in Shanghai and Shenzhen Stock Exchanges, would move up or down by 5 percent before 2:45 p.m. In addition, the mechanism entailed that in case the movement reached 7 percent when trading was resumed, then the market would close for the day.
Under these provisions, the circuit breaker mechanism has already been triggered twice in a week, on both Monday and Thursday, as plunges in the Hushen 300 Index reached 7 percent in both trading days.
Xinhua published the statement of the spokesperson of the China Securities Regulatory Commission (CSRC), Den Ke , who announced the CSRC decision to suspend the circuit breaker mechanism to maintain market stability, because it felt that “currently, the negative effects of the mechanism are greater than the positive effects.”
According to Mr Deng , “the mechanism was introduced with the aim of providing a calm-down period for the market to avoid or reduce hasty trading decisions in the case of sharp fluctuations, protecting the interests of investors. It also provides time for dealing with technological and operational risks.” However, as he further pointed out, although the mechanism itself is not the main reason for the plunge in the Chinese market, it has failed to achieve the anticipated effects, while it has actually accelerated the plunge as some investors decided to sell when the index’s drop neared 5 percent or 7 percent.
Mr Deng also announced that the CSRC “will carefully sum up the experience and lessons, organize research on improving the mechanism and seek extensive public opinions,” before it comes up with a new version or a different mechanism.
In the meantime, following the trading suspension on Thursday, the CSRC also unveiled new rules to limit big shareholders from selling their stocks. According to the notice issued on the matter big shareholders, the management and those who hold more than 5 percent of a company’s shares were asked not to sell more than 1 percent of the company’s shares within any three-month period. In addition, and according to the new rule that will take effect on 9 January 2016, those who want to reduce their holdings have to publicize their plans 15 trading days beforehand.
Moreover, in an attempt to help in maintaining the much needed market stability in Chinese, several state-owned enterprises, including China Aerospace Science and Industry Corporation and China National Offshore Oil Corporation, have also announced on Thursday that they will not sell shares of listed companies they control.
The Chinese authorities are taking further corrective measures to help boast their economy and the country’s Premier Li Keqiang has also announced that China will provide full support for the coal and steel sectors, which suffer serious overcapacity, to help them out of their current difficulties.
Prompted by the fact that overcapacity in those sectors became a prominent problem due to weak demand at home and abroad and dropping commodity prices on the global market the government has shown its resolved to take “a combination of measures” to resolve problems from overcapacity, including fiscal and financial support, while it also looks set to support industrial restructuring and optimization, focusing not just on old industries, but also on new sectors that will thus provide new impetus for growth to provide more jobs lost in the traditional sectors.