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

  • Online cannabis dispensaries join in on Black Friday sales

    Economic CTV News
    Online cannabis dispensaries are the latest to cash in on the holiday shopping frenzy, with some offering dramatic markdowns or novelty products as the season known for consumer spending gets underway. Several online cannabis stores are holding Black Friday sales for the first time this year in an effort to stay competitive and draw new customers in what they call an increasingly competitive market. Source
  • Why France hates Black Friday: 'I find it sad'

    Economic CTV News
    Having adopted hamburgers, Halloween and a host of English words, some in France are worried about the latest cultural import from America: the day of rampant consumerism known as Black Friday. Unheard of only a few years ago, the cut-price deals made the television news bulletins Friday as local retailers copied their American counterparts in trying to lure in shoppers ahead of the Christmas season. Source
  • Canadian operating profits top $100B amid financial sector strength

    Economic CTV News
    OTTAWA -- Statistics Canada says strong performance in the financial sector drove Canadian corporate operating profits to just over $100 billion in the third quarter, up 17.2 per cent from the same period last year. Source
  • WestJet launches new regional air service in Western Canada

    Economic CTV News
    CALGARY -- WestJet Airlines Ltd. (TSX:WJA) has introduced a new regional air service in Western Canada operating under a capacity purchase agreement with B.C.-based Pacific Coastal Airlines Ltd. WestJet Link will connect the Alberta communities of Lethbridge, Lloydminster and Medicine Hat and the B.C. Source
  • Aurora formally launches hostile takeover bid for CanniMed Therapeutics

    Economic CTV News
    TORONTO -- Aurora Cannabis Inc. formally launched its all-stock hostile takeover bid for CanniMed Therapeutics Friday, on the condition that the medical marijuana producer cancel its own planned acquisition of Newstrike Resources Ltd. The Vancouver-headquartered licensed marijuana company says in a statement it placed a newspaper ad for its offer to acquire all issued and outstanding shares for up to $24, and a takeover bid circular will be mailed to CanniMed's shareholders. Source
  • CEO Suzanne West vows to pursue greener path after oil firm splits with backers

    Economic CTV News
    CALGARY - One of the few female CEOs in the Canadian oilpatch says she has parted ways with her American financial backers and her Calgary company's oil and gas assets have been taken over by a newly-created entity. Source
  • Ontario gaming agency will expand online and mobile betting

    Economic CTV News
    TORONTO -- Think you know when U.S. President Donald Trump will be impeached? How about who the next James Bond will be? Or perhaps you have an inside track on the name of the next royal baby? Source
  • Aurora Cannabis launches hostile takeover bid for CanniMed Therapeutics

    Economic CBC News
    Aurora Cannabis Inc. formally launched its all-stock hostile takeover bid for CanniMed Therapeutics Friday, on the condition that the medical marijuana producer cancel its own planned acquisition of Newstrike Resources Ltd. The Vancouver-headquartered licensed marijuana company says in a statement it placed a newspaper ad for its offer, valued at $24 per share, and a takeover bid circular will be mailed to CanniMed's shareholders. Source
  • Aurora takeover bid 'makes no sense,' based on inflated share price: CanniMed

    Economic CBC News
    Aurora Cannabis Inc. formally launched its all-stock hostile takeover bid for CanniMed Therapeutics Friday, on the condition that the medical marijuana producer cancel its own planned acquisition of Newstrike Resources Ltd. The Vancouver-headquartered licensed marijuana company says in a statement it placed a newspaper ad for its offer, valued at $24 per share, and a takeover bid circular will be mailed to CanniMed's shareholders. Source
  • Amazon workers in Germany, Italy stage Black Friday strike

    Economic CTV News
    BERLIN -- Workers at a half dozen Amazon distribution centres in Germany and one in Italy walked off the job Friday, in a protest timed to coincide with "Black Friday" to demand better wages from the American online giant. Source