Falls in the stock market

International stock markets in turmoil

China will suspend its new stock market circuit-breaker mechanism - designed to stop free-falling prices - from Friday, the Shanghai and Shenzhen stock exchanges have said.

A Chinese investor looks at prices of shares (green for price falling) at a stock brokerage house. Photo: AFP

Radio NZ,

8 January, 2015

The mechanism, which had been in place since the start of this year, suspends trading on China's main stock markets if stocks fall 7 percent.

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That circuit-breaker was activated twice this week alone. On Thursday, it was triggered within half an hour of trading, giving China's stock markets their shortest trading day in 25 years.

"After weighing advantages and disadvantages, currently the negative effect is bigger than the positive one. Therefore, in order to maintain market stability, CSRC has decided to suspend the circuit-breaker mechanism," a statement from the China Securities Regulatory Commission (CSRC) said.

The renewed share suspension in China caused global shares to fall sharply on Thursday, with Wall Street opening more than 1 percent lower and European markets trading 2 percent down.

Prices also fell in Hong Kong and Tokyo yesterday, and in New Zealand the NZX-50 index closed down 0.8 percent.

In Australia, the main ASX index also struggled, down more than 2 percent at the close of trade.

Australia's key share indices are still to make a gain in 2016.

Investors nervous

Investors are nervous after the Chinese central bank moved to weaken the the country's currency, the yuan, for the eighth day running, sparking fears of a currency war.

This move is designed to boost exports by making Chinese goods cheaper outside the country, analysts have speculated.

It is also being interpreted as an indication that consumer demand in China may be slowing more sharply than feared.

Official economic growth in China is still running at just below 7 percent.

But moves to devalue the yuan suggest attempts to shift the economy from an export-led one to a consumer and services-led one are running into problems.

Analysts said Beijing's introduction of the circuit-breaker mechanism had proved counter-productive. Investors had panicked they would not be able to sell shares they did not want, rather than being reassured over market stability.

The system is based on the China's CSI 300 index, which tracks the largest 300 stocks on the Shanghai and Shenzhen stock exchanges and was triggered for the first time on Monday.

If the index falls by 5%, the markets are suspended for 15 minutes.

But when trading resumed after the initial halt on Thursday, it took only one minute for the 7% threshold to be reached, prompting a shutdown for the rest of the day.