New | China’s stock markets to introduce circuit breaker from January 1 to stem future routs
Analysts say a market mechanism is better than government intervention
Mainland China’s stock markets will install a circuit breaker from January 1 to prevent a repetition of the market rout which wiped out trillions of dollars from June this year.
Analysts said it was better to have a market-based mechanism rather than arbitrary government intervention, although the move might affect market liquidity, together with a daily cap that allows only 10 per cent upward or downward movement for individual stocks, and a so-called T+1 rule that prevents investors from buying and selling shares on the same day.
A move of 5 per cent in the CSI 300 Index, China’s blue-chip tracker, will trigger a 15-minute halt for stocks, options and index futures, while a swing of 7 per cent would lead to trading being called off for the rest of the day, according to announcements posted by the Shanghai Stock Exchange, Shenzhen Stock Exchange and the China Financial Futures Exchange on Friday afternoon.
Northbound trading via the Shanghai-Hong Kong Stock Connect scheme will be suspended if the circuit breaker takes effect, but southbound would not be affected, the Shanghai Stock Exchange said in a Q&A published on its official microblog.
Adam Xu, a mutual fund manger based in Shanghai, said institutional investors “have been making preparations”, including gathering more long-term funds.
“We should prepare for liquidity difficulties, as it would be challenging to meet the redemption requirements if the whole markets were suspended from trading,” he said.
Clearly the Chinese authorities are nervous about big volatilities, and what they did during this summer after the rout was clearly uncommon