A ‘circuit breaker’ recently installed by the Chinese government into stock markets paused trade on Thursday after the CSI300 index fell 5 per cent in the first 13 minutes of trade.
When trade resumed, a further 2.2 per cent fall saw trading automatically halted for the day.
This is the second time trade has been halted by the circuit breaker – trading was halted on Monday after a similar 7 per cent fall.
A six-month ban on selling by large shareholders (ie. stakeholders with holdings over 5 per cent) was due to expire today, but at the time of writing the Chinese government appears to have indicated it will be extended.
Speaking to InvestorDaily, AMP Capital head of investment strategy Shane Oliver said the prospect of the lifting of the ban on selling by large stakeholders was part of the reason for the plunge on Monday.
“That was the original factor that drove the falls on Monday and then it was probably made worse by a worse than expected outcome for the Caixin manufacturing PMI,” Mr Oliver said.
The big factor on Thursday was the further depreciation of the Chinese currency by the People’s Bank of China, with the official midpoint rate set 0.5 per cent weaker than Wednesday, he added, but the biggest driver of the falls on both Monday and Thursday may well be the circuit breaker policy itself.
“Investors, knowing that [the circuit breaker is] there, tend to try and get their selling in earlier. It pulls forward selling that may not have otherwise occurred,” he said.
As for whether China’s stock market will continue its downward trend in the short term, Mr Oliver was quietly confident.
“I wouldn’t think so. I would think it’s going to start worrying the Chinese authorities again. They’ll probably try and do something to stablise the currency,” he said.
“So they’ll probably go back to a bit of jawboning and then try and intervene a little bit to try and stablise the currency.”
As for the Chinese stock market itself, valuations are actually cheaper than the Australian stock market, he said.
“From a valuation perspective there’s no argument for a further sharp fall in the Chinese sharemarket and I would argue it looks reasonably good value,” Mr Oliver said.
“And likewise the Chinese economy looks okay to me – it looks like it’s stabilising around 6.5 to 7 per cent growth.
“So the fundamentals look okay regarding China, but in the short term, sentiment is quite negative – so we can’t rule out further declines in the short term.”
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