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Trading halts ease stocks' fall

Over one third of the companies listed on the Shanghai and Shenzhen exchanges havesuspended trading of their shares to provide a temporary safe haven from market turmoil

Li Xiang (The Jakarta Post)
Beijing
Wed, July 8, 2015

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Trading halts ease stocks' fall

O

ver one third of the companies listed on the Shanghai and Shenzhen exchanges havesuspended trading of their shares to provide a temporary safe haven from market turmoil.

Another 217 companies applied for trading suspension on Tuesday, which if granted would bringthe number of suspensions to 986 of the roughly 2,800 companies listed on the Shanghai andShenzhen exchanges, according to media estimates.

By the end of Monday, the record suspensions had frozen the trading of shares worth about US$1.4trillion, or 21 per cent of China's market capitalisation, according to Bloomberg. Despite thetrading halts, the Chinese stock market continued to tumble on Tuesday, with the benchmarkShanghai Composite Index declining by 1.29 per cent to close at 3,727.12 points.

Analysts said that the trading halts could transfer selling pressure to remaining shares anddepress stock prices of companies with reasonable valuations.

While stock prices of some State-owned insurers, banks and oil companies managed to gain onTuesday, selling continued to intensify in overvalued small stocks as investors rushed to unwindtheir positions or switch their funds into safer blue chips.

More than 1,600 stocks in Shanghai and Shenzhen sank by the 10 per cent daily trading limit.Shares on the startup ChiNext board, home to the country's technology and high-growthcompanies, were either suspended from trading or suffered heavy losses. The index dropped by5.69 per cent on Tuesday and has lost nearly half of its value since the peak in mid-June.

The fatigue and anxiety of retail investors has prompted them to dump whatever stocks they holdjust to stay out of the turbulent market.

Futures contracts of the CSI 500 index, which tracks 500 small-and mid-cap stocks, dropped byits 10 per cent daily trading limit on Tuesday after the China Financial Futures Exchange cappedmaximum daily trading volume at 1,200 contracts per account to curb speculation.

The government has rolled out a string of measures to stem the market decline, including haltingnew share sales and injecting liquidity into the State-owned margin finance company.

The equities meltdown, which has erased $3.2 trillion in market value, has also raised fears ofrising bad loans in the banking sector, since many listed companies have used their shares ascollateral to borrow money.

"The most dangerous deleveraging phase seems to have passed, but aftershocks could stillunsettle the market," said Zhou Yu, an analyst at Pacific Securities.

"If not effectively managed, it could lead to worsening balance sheets of securities brokeragesand banks, creating a 'butterfly effect' in the entire financial system," he said.

Li Xinran, an individual investor in Beijing, said: "It is pointless now to follow the overall stockindex. The rise of big-cap blue chips will help make it look less ugly, but the slump of smallerstocks is far from over."

(hhr)

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