China stocks rout on first market day of 2016 trips national trading halt

Mon Jan 4, 2016 12:15pm EST
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By Pete Sweeney and Samuel Shen

SHANGHAI (Reuters) - China's major stock exchanges tanked on the first trading day of the year, triggering a "circuit-breaker" that suspended equities trade nationwide for the first time and putting at risk months of regulatory work to restore market stability.

The selloff saw the CSI300 index of the largest listed companies in Shanghai and Shenzhen lose 7.0 percent before trading was suspended, its worst single-day performance since late August 2015, the depth of a summer stock market rout.

And more weakness may be in the cards on Tuesday if the behavior of a U.S. exchange traded fund tracking mainland China shares is a guide. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF slumped nearly 9 percent in midday U.S. trading, hitting its lowest since October 2014.

Shares of several Chinese companies that trade primarily in U.S. markets, and are not subject to the same trading limitations, slumped as well, though not by the same magnitude. Alibaba Group Holdings Ltd shed 6.6 percent and Baidu Inc. fell by 2.8 percent. The Bank of New York Mellon China ADR Index lost 4.4 percent.

The collapse, which followed the release of weak economic data on Monday, raises fresh doubts about regulators' capacity to wind back heavy trading restrictions implemented in the wake of a massive summer stock market crash in which major indexes lost as much as 40 percent before top leadership intervened.

In fact, many analysts attributed the decline to the imminent end of a 6-month lockup period on share sales by major institutional investors, a policy implemented to shore up indexes in the wake of the crash.

"This is quite unexpected," said Gu Yongtao, strategist at Cinda Securities.

"The slump apparently triggered intensified selling, while the trigger of the circuit breaker seems to have heightened panic, as liquidity was suddenly gone and this is something no one has experienced before. It was a stampede."   Continued...

An investor sits in front of an electronic board showing stock information at a brokerage house in Beijing, China, January 4, 2016.  REUTERS/Li Sanxian