China's markets open without 'circuit breaker'

BEIJING -- The latest trigger was currency jitters, but Thursday's plunge in Chinese stocks was just one in a series of aftershocks from last year's boom and bust that could shake markets for months to come.

See Full Article

Investor anxiety over economic weakness and a possible glut of unwanted shares flooding the market have complicated Beijing's efforts to withdraw emergency controls imposed after Chinese stock prices collapsed in June.

On Thursday, trading halted for the day after a stock index fell 7 per cent a half-hour into the trading day. It was this week's second daylong suspension after a plunge in prices Monday tripped the same "circuit breakers" that were introduced Jan. 1.

Regulators suspended use of the "circuit breaker" effective Friday after economists warned it might be adding to volatility. They said trading was halted to often and the mechanism accelerated declines by encouraging investors to sell quickly before they were locked out. According to IHS, the mechanism would have been tripped 20 times if it had been in place in the final quarter of 2015.

The benchmark Shanghai Composite Index more than doubled between late 2014 and June, then dived 30 per cent. Supported by a multibillion-dollar government intervention, the market rose almost 25 per cent in the final months of 2015, only to collapse in the new year. That left the main index down 15 per cent from its December peak.

Wild price swings could continue through the first half of this year, according to financial analysts. Even after the latest declines, the Shanghai index is up 36 per cent from October 2014.

The turmoil in China triggered a sell-off in Asian and Western stocks. Beijing keeps its markets sealed off from global capital flows, but due to the vast size of China's economy, foreign investors watch them closely and react to volatility.

"The market still is trying to find a bottom, and that takes time," said Chen Yong, a strategist at Lianxun Securities. "The key is to be able to resume normal daily trading, and during that time volatility is inevitable."

The upheaval disrupted the ruling Communist Party's plans to use the stock markets as a tool to make China's state-dominated economy more competitive and productive.

Economic growth fell to a six-year low of 6.9 per cent in the July-September quarter and is forecast by the International Monetary Fund to decline further to 6.3 per cent this year. Monday's stock price plunged was triggered by surveys that showed manufacturing in December was weaker than expected.

The latest bout of selling was fueled by concern Beijing is letting China's yuan weaken too fast against the dollar.

The yuan, also known as the renminbi, has drifted down by 6 per cent against the U.S. currency since the central bank adopted a mechanism in August it said would make the state-set exchange rate more market-oriented.

The yuan's link to the dollar meant it soared as the U.S. currency climbed over the past year, making it overvalued by 10 to 15 per cent against those of other developing countries. But the prospect Beijing would close such a large gap fueled fears it might lead to an outflow of capital, weakening China's economy and reducing the supply of money to support share prices.

Thursday's exchange rate of 6.5646 yuan to the dollar was the lowest since March 2011.

"The government hopes to see the yuan depreciate to stimulate exports and the economy, but the speed of depreciation went too fast," said analyst Zhang Gang of Central China Securities.

The White House said the U.S. was closely monitoring China's currency. White House spokesman Josh Earnest said the U.S. approach to the uncertainty was to continue pressing China to speed up the pace of economic reforms he said would benefit China long-term and help the global economy.

Investors also were skittish about the impending end Thursday of a six-month ban on share sales by any stockholder who owns more than 5 per cent of a company, according to Zhang.

Regulators tried to head off such concern by announcing earlier in the week major shareholders could sell only in private transactions to avoid flooding the market. After Thursday's market plunge, the securities agency tightened that restriction by saying they can unload only the equivalent of 1 per cent of a company's shares over the next three months.

"Additional volatility in China's stock market remains almost certain in the first half of 2016," said economist Brian Jackson of IHS Global Insight in a report. "China's stock market reform will remain a messy affair."

Chinese leaders encouraged novice investors to pile into stocks beginning in late 2014. They wanted to raise money for state companies to pay down heavy debt loads and become profit-oriented and competitive. Communist planners also hoped investing would help families save for retirement, easing the pressure on Beijing to pay for pensions and health care.

Those plans went wrong when markets soared faster than Beijing wanted. By May, state media that cheered on higher prices started to mix in appeals for investors to act prudently.

After prices plunged in June, the government banned sales by big shareholders, ordered state companies to buy stock, cut interest rates and cancelled initial public offerings.

The government has yet to say what its intervention cost, but Goldman Sachs has estimated state entities spent 860 billion-900 billion yuan ($135 billion-$140 billion) to buy shares in June and July.

------

AP researchers Yu Bing in Beijing and Fu Ting in Shanghai and writer Josh Lederman in Washington contributed.



Advertisements

Latest Economic News

  • San Francisco brewery ordered to stop making beer with CBD

    Economic CTV News
    SAN FRANCISCO -- U.S. officials have ordered a San Francisco brewery to stop producing beer containing cannabidiol, the hemp-derived extract known as CBD. The U.S. Alcohol and Tobacco Tax and Trade Bureau is allowing Black Hammer Brewing to sell the rest of the CBD beer it already brewed, including one called Toke Back Mountain. Source
  • Canadian auto sector observers doubt U.S. will carry through on tariff threat

    Economic CTV News
    Canadian auto industry observers are reacting with shock and disbelief to news that U.S. President Donald Trump has ordered an investigation that could result in tariffs of up to 25 per cent on auto sector imports into the United States. Source
  • Trudeau says Trump's threat of auto tariffs would hit U.S. just as hard

    Economic CTV News
    Prime Minister Justin Trudeau said he plans to tell U.S. President Donald Trump that his threat to slap tariffs of up to 25 per cent on vehicle imports would have an "incredibly negative effect" on the American economy. Source
  • Disputed Keystone XL pipeline backed by Trump is focus of court hearing

    Economic CBC News
    Trump administration attorneys were due in a Montana courtroom Thursday to defend the disputed Keystone XL oil sands pipeline against environmental groups and Native American groups that want to derail the project. The 1,800-kilometre line proposed by TransCanada Corporation was rejected in 2015 by former President Barack Obama because of its potential to exacerbate climate change. Source
  • Trump administration defends Keystone XL pipeline in court

    Economic CBC News
    Trump administration attorneys were due in a Montana courtroom Thursday to defend the disputed Keystone XL oil sands pipeline against environmental groups and Native American groups that want to derail the project. The 1,800-kilometre line proposed by TransCanada Corporation was rejected in 2015 by former President Barack Obama because of its potential to exacerbate climate change. Source
  • Facebook won't pay compensation for Cambridge Analytica case

    Economic CTV News
    BRUSSELS -- Facebook says it will not compensate users in the scandal over the misuse of their personal data by political consultancy Cambridge Analytica. The company made the statement Thursday in a list of written replies to questions by European Union lawmakers. Source
  • Canada still wants to work with China despite blocked Aecon takeover: Bains

    Economic CBC News
    Canada is still open to working with China in the future, despite killing the massive takeover of Canadian construction company Aecon Group Inc. by Chinese interests, says Innovation Minister Navdeep Bains. "I'm confident that we'll continue to work together. Source
  • McDonald's not ready to let go of plastic straws

    Economic CBC News
    McDonald's isn't ready to stop offering plastic straws, despite environmental concerns. A shareholder proposal to pressure the world's biggest hamburger chain on the matter was voted down at the company's annual meeting Thursday. The proposal by activist group SumOfUs asked for a report about the "business risks" of using plastic straws at the chain's 37,000 locations globally. Source
  • McDonald's not ready to let go of plastic straws in U.S.

    Economic CTV News
    NEW YORK -- McDonald's isn't ready to stop offering plastic straws, despite environmental concerns. A shareholder proposal to pressure the world's biggest hamburger chain on the matter was voted down at the company's annual meeting Thursday. Source
  • Trump administration explores tariffs on autos, auto parts

    Economic CTV News
    WASHINGTON -- The Trump administration launched an investigation into whether tariffs are needed on the imports of automobiles into the United States, moving swiftly as talks over the North American Free Trade Agreement have stalled. Source