China halted trading in stocks, futures and options after a selloff triggered circuit breakers designed to limit swings in one of the world’s most volatile equity markets.
Trading was halted at about 1:34 p.m. local time on Monday after the CSI 300 Index dropped 7 percent, according to data compiled by Bloomberg. An earlier 15-minute halt at the 5 percent level failed to stop the retreat, with shares extending losses as soon as the market re-opened. The selloff, the worst-ever start to a year for Chinese shares, came on the first day the circuit breakers took effect.
The $7.1 trillion stock market is starting the year on a down note after data showed manufacturing contracted for a fifth straight month and investors anticipated the end of a ban on share sales by major stakeholders. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on economy set to grow at its weakest annual pace since 1990.
“Stay short, or go home,” said Mikey Hsia, a trader at Sunrise Brokers LLP in Hong Kong. “That’s all you can do.”
The halts took effect as anticipated, without any technical issues, Hsia said. About 595 billion yuan ($89.9 billion) of shares changed hands on mainland exchanges before the suspension, versus a full-day average of about 1 trillion yuan over the past year, according to data compiled by Bloomberg.
Hong Kong Hedge
Under the circuit breaker rules finalized last month, a move of 5 percent in the CSI 300 triggers a 15-minute halt for stocks, options and index futures, while a move of 7 percent closes the market for the rest of the day. The CSI 300, comprised of large-capitalization companies listed in Shanghai and Shenzhen, fell as much as 7.02 percent before trading was suspended.
Chinese shares listed in Hong Kong, where there is no circuit breaker, extended losses after the halt on mainland exchanges. The Hang Seng China Enterprises Index retreated 4.1 percent at 2:12 p.m. local time.
"Investors are using Hong Kong to hedge their positions," said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. "The circuit breaker may increase selling pressure further."