New | China's proposed circuit breakers may add to stock market volatility

A plan by China's regulators to introduce circuit breakers will do little to stop the slide in equity prices and may exacerbate volatility in Hong Kong as liquidity-hungry investors dump stocks here, say analysts.

"It's a matter of confidence and I don't see any measure that can stop the market fall," said Louis Tse, a director at VC Brokerage in Hong Kong.

Under the proposal, pitched by the Shanghai and Shenzhen stock exchanges on Monday and open to public review until September 21, mainland Chinese markets will cut out for 30 minutes if the large-cap CSI 300 Index rises or falls 5 per cent in a single trading session. Markets will close for the day if the index moves up or down 7 per cent.

The circuit breaker system also applies to CSI 300 index futures at the China Financial Futures Exchange in Shanghai.

The exchanges said the decision was aimed at "maintaining market order, protecting investors' interests and boosting the long-term healthy development of the capital market".

Analysts say the concept differs from similar systems in the US or Singapore as China's market is dominated by retail investors rather than trading houses.

"It's a momentum control," said Brett McGonegal, an executive managing director at Reorient Group. "(Market) movement is driven by excessive momentum by retail investors."