Tuesday, 5 January 2016

Stock Markets Fall As China Halts Trading

NZ sharemarket falls amid global jitters

The New Zealand sharemarket has started the new trading year on the back foot.
A trader works on the floor of the New York Stock Exchange.A trader works on the floor of the New York Stock Exchange.      Photo: AFP


5 January, 2016, 

Updated at 11:25 am today,NZT



The benchmark NZX-50 index opened down about 40 points, or 0.7 percent, in the first few minutes of trading.

It extended the losses and at 10.40am was down 1.2 percent, or 78 points at 6246.

The fall followed a rout on global share markets, with American and most European markets closing down more than two percent recorded larger loses.

The current volatility has been triggered by a sharp slide in China, where weak manufacturing data renewed fears about the health of the world's second biggest economy.

Falls on the local market outnumber the rises by more than three to one, with almost all of the leading stocks losing more than 1 percent.
The drop in the local market is being exaggerated by low numbers of shares being traded.

Some investors will also likely be taking profits after the New Zealand market's record-breaking run last year.

Sharp falls in China prompted a trading halt on the main stock markets, after indexes tumbled 7 percent.

A survey indicating China's manufacturing sector contracted again last month was blamed for the falls.

Other Asian markets also fell, while in Europe the FTSE 100 sank 2 percent and Germany's Dax index dropped 3.8 percent.

Meanwhile, news that Saudi Arabia had broken off diplomatic ties with Iran sent oil and gold prices higher.

On Wall Street, all 10 major S&P sectors were lower, led by the 2.4 percent fall in the technology sector. Bank stocks were also hard hit, with Goldman Sachs down 3.2 percent.

"Those are violent New Year fireworks, Janlyn Capital managing director Andre Bakhos said. "That's quite a way to start the day off."

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

Earlier on Monday, trading on China's Shanghai and Shenzhen stock exchanges was halted for the first time under new "circuit breaker" rules, which are designed to curb market volatility.

The share price falls came after more signs of trouble in the world's second-largest economy.

The Caixin/Markit purchasing managers' index slipped to 48.2 in December, marking the 10th consecutive month of shrinking factory activity in the sector. A reading below 50 indicated contraction.

Some analysts also attributed the decline in share prices to the imminent end of a six-month lockup period on share sales by major institutional investors, a policy implemented to shore up indexes. Big shareholders may start dumping shares once the ban is lifted on Friday.

Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said: "The market will not improve because there will be heavy selling in the near future."
Monday's sell-off in China had a knock-on across the region. Japan's Nikkei 225 tumbled 3.1 percent and Hong Kong's Hang Seng retreated 2.6 percent.

"Welcome to 2016, though you'd be forgiven for thinking the markets were back in August 2015 with China causing some early New Year issues," said Spreadex analyst Connor Campbell.

And Alastair McCaig, market analyst at IG, said: "Anyone hitting the trading floor expecting a calm and quiet start to 2016 was given a rude surprise as Asian chaos affected European markets."

Markets were also rattled by growing tensions between Middle East powerhouses Saudi Arabia and Iran over the execution of Shia cleric Nimr al-Nimr.

The execution in Saudi Arabia led to protests in Tehran. Saudi has cut diplomatic ties with Iran and given diplomats 48 hours to leave.

Iran's supreme leader has warned Saudi Arabia it would face "quick consequences" for the execution.
- BBC

Stock Markets Fall As China Halts Trading
A new "circuit breaker" halts share dealings in China, prompting other world markets including the FTSE 100 to plunge sharply


4 January, 2016

Stock markets have reacted nervously after trading on China's Shanghai and Shenzhen indices was halted early on Monday when shares plunged by about 7%.

The Shanghai Composite Index fell to its lowest level in nearly three months, on what was the first trading day of 2016.

An earlier 15-minute break in trading, when shares had fallen by more than 5%, failed to stem the slump.

The FTSE 100 in London lost 2.4% in response - wiping roughly £38bn off its value - in what proved a jittery session across Asia, Europe and the US.

Germany's DAX shed 4.3%.

It was the first time a new "circuit breaker" system - designed to curb volatility in Chinese stock markets - was triggered, with trading ending 90 minutes earlier than the usual close.



Monday's decline was among the biggest the Shanghai market has endured

Poor Chinese manufacturing data was a factor behind the falls in China.

An independent report released early on Monday suggested that factory activity in China had been contracting for 10 consecutive months as of December.

Spectacular aerial view of city from Shanghai Tower, Shanghai, China - 30 Aug 2013

Escalating tensions in the Middle East, sparked by Saudi Arabia's execution of a prominent Shia cleric over the weekend, also led to a jump in oil and gold prices.

Financial analysts are particularly concerned about how the Chinese market will react when measures designed to enhance stock market stability expire in the coming days.

At the start of July, major shareholders in Chinese companies were banned from selling their stakes for six months.


China Day 1: Monumental Destruction


4 January, 2016




China's Shanghai Composite index was stopped down nearly 7% on the first trading day of the new year.  This is worse than 99.6% of all trading days since the beginning of 2007 (a monstrous era covering the entire market turmoil of the global financial crisis).

To put some risk context behind how poor a ~7% drop is -in relation to the worst losses over different time (not just relative to all daily changes)- we look at a variety of time units.  This is different from the market convolution math discussed previously (herehere).  For example, today’s loss in China is worse than 93% of the worst daily losses per month, since 2007.  We see this in the chart immediately below.  And in the chart further below that, we see today’s loss is worse than 67% of the worst daily losses per year.  Lastly, in that same chart, we show China’s first day loss is worse than even the majority of the worst weekly losses per year!  This conservative measure substantiates that on just a single day, the losses stemming from China has breached most of the worst risk levels that would normally take a complete week to get through. 

And we see in the chart above that today's loss in China is worse than the worst daily loss coming out of 100 out of the past 108 months (only the 3 months where the worst daily loss was rounded to 0% have been truncated from the chart above)!  In fact, as shown in the blue portion of the chart, there have only been 4 months since mid-2008, where the worst daily loss that month was worse than today's loss.  Those 2015 months are: January, June, July, and August.


We see in the jittery chart above (third column), that today's loss is worse than the worst daily loss coming out of 6 of the past 9 years (hence the 67%).  And in the middle column we see today's loss is worse than the worst weekly loss coming out of 5 of the past 9 years (or the majority)!  This statistic provides a powerful segue with our prequel article on the worst weekly loss distributions.  Finally in the first column we see that today's loss is worse than the worst monthly loss coming out of even 2 of the past 9 years.  

The main takeaways from this article is that market shocks can be quite quick, when they suddenly unravel.  There is no need for markets to follow an observable pattern (therefore casting an omen just for you).  Recall as well that this is just "day 1"!  There are ~20 additional dramatic trading days ahead this month, where anything can precipitously take place.


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