Miserable, horrific, worrying – whatever you choose to call it, Chinese stocks began 2016 with a thud, recording one of the largest losses on record.
Further weakness in the Chinese yuan – indicating that capital outflows from the nation may be accelerating – along with another weak manufacturing PMI report for December, contributed to the plunge in Monday’s trade.
At 7.02%, the decline on the CSI 300 – an index that comprises the largest listed firms by market capitalisation in Shanghai and Shenzhen – was so enormous trade was halted early, a consequence of new market circuit-breakers being activated on the first day they were implemented.
It really was that bad that authorities closed markets early to prevent an even greater sell-off.
Even with the early close, the percentage decline on the CSI 300 was the 14th largest on record.
It was also the worst start to a trading year for the index, an ominous sign for what may arrive in the year ahead.
Thin trading volumes, along with concern that large shareholders may rush to liquidate holdings when a ban on selling is scheduled to end later in the week, were also cited as possible catalysts that amplified the selling pressure.
“Investors are also concerned that a removal of major shareholders selling ban would weigh on indexes,” said William Wong, head of sales trading at Shenwan Hongyuan Group in an interview with Bloomberg.
The CSRC, China’s stock market regulator, announced on July 8 last year that investors with holdings exceeding 5% in any one listed entity, along with corporate executives and directors, would be prohibited from selling stocks for a six month period.
The CSRC has not announced whether the ban – scheduled to end on January 8 this year – will be lifted.
After today’s performance, it wouldn’t come as a surprise to see the ban on selling by significant shareholders extended further.
You can read more from Bloomberg here.