Updated on
Chinese stocks gained after the government abandoned new circuit breakers blamed for exacerbating the worst-ever start to the nation’s equities.
The Shanghai Composite Index climbed 2 percent at 9:33 a.m. local time. Regulators announced the mechanism would be suspended late on Thursday night after plunges this week repeatedly triggered the circuit breakers, which were implemented on Monday. A falling yuan has also raised concern the economic slowdown is deepening. The central bank set the currency’s reference rate little changed Friday.
"The scrapping of the circuit breaker system will help to stabilize the market, but a sense of panic will remain, particularly among retail investors," said Li Jingyuan, general manager at Shanghai Bingsheng Asset Management. "The ‘national team’ will probably continue to buy stocks significantly to stabilize the market."
While China’s high concentration of individual investors makes its stock-market notoriously volatile, the extreme swings this year have revived concerns over the ruling Communist Party’s ability to manage an economy set to grow at the weakest pace since 1990. The selloff has spread around the world this week, sending U.S. equities to their worst-ever start to a year and pushing copper to the lowest levels since 2009.
Curbs Remain
Investors still face plenty of restrictions in how they trade. Rules limit daily moves by individual stocks to 10 percent, while investors aren’t allowed to buy and sell the same shares in a day. Curbs on trading in what was the world’s most active index futures market have cut volumes by 99 percent from the peak, making it harder to implement hedging strategies. Daily and aggregate quotas limit trading by foreign investors.
“Although there’s more ability now for offshore participation, it’s largely a market that’s restricted the domestic users,” said Ric Spooner, Sydney-based chief market analyst at CMC Markets Asia Pacific Ltd. “That means it doesn’t get the arbitrage benefits that international investors bring. It’s a work in progress.”
The flip-flop in the circuit breaker rule adds to the sentiment among global investors that authorities are improvising -- and improvising poorly -- as they try to stabilize markets and shore up the economy.
“They are changing the rules all the time now,” Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners in The Hague with about $206 billion under management. “The risks seem to have increased.”
