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China’s stocks fell so hard on their first day of 2016 trading, they triggered a new circuit breaker

Reuters/Kim Kyung-Hoon
Heading down.
  • Steve Mollman
By Steve Mollman

Weekend editor

Published This article is more than 2 years old.

China’s stock markets got off to a rough start in 2016. Stocks plummeted today (Jan. 4) after reports showed weak factory activity in December, a 10th straight month of contraction, and at a sharper pace than in November. A rapidly weakening yuan and the imminent expiration of a share sales ban on the major shareholders of listed companies may also have contributed to the decline.

The benchmark CSI 300 Index fell 7%, triggering a new circuit-break system (paywall) that only took effect today, while the Shanghai Composite Index fell by 6.9%, and the smaller Shenzhen Composite by 8.2%.

Last month authorities announced they’d halt trading for 15 minutes if the CSI 300—a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen—moved up or down by 5% or more up to 15 minutes before their 3pm close. That was a reaction to last year’s volatile markets, which dropped more than 40% over the summer.

Trading was halted about 90 minutes before the regular close, when stocks had fallen by 5%. When it started up again 15 minutes later, stocks continued their downward plunge, and trading was shut for the day when they had dropped by 7%.

With a figure under 50 indicating contraction, the Caixin/Market China manufacturing purchasing managers index (PMI) fell from 48.6 in November to 48.2 last month. The private PMI survey focuses more on small and midsize businesses. On Friday an official survey, which looked at larger companies, suggested a fifth month of shrinking factory activity.

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