China’s shares took a wild ride Tuesday, darting between gains and losses before closing mixed, following a sharp selloff in the previous session, while other Asia markets retraced some declines.
In volatile trade, the Shanghai Composite closed down 8.55 points, or 0.26 percent, at 3,287.7 after rising as much as 0.95 percent and falling as much as 3.2 percent earlier in the session. The smaller Shenzhen Composite finished down 39.38 points, or 1.86 percent, at 2,079.77, while the CSI300 erased losses to end up 9.71 points, or 0.28 percent, at 3,478.78 after falling as much as 2.65 percent intraday.
In Hong Kong, the Hang Seng Index erased mid-morning gains to close down 0.65 percent.
In Monday’s trading session, Chinese equities plunged after feeble manufacturing surveys revived concerns over the country’s economic slowdown. The CSI300 dipped 7 percent in afternoon trade Monday, resulting in trade being suspended for the day. The Shanghai Composite had tumbled 6.8 percent and the Shenzhen Composite plummeted 8.1 percent Monday.
Goldman Sachs said in a note Tuesday that other factors cited as explanations for the sell-off include market concerns over near-term liquidity, capital outflows, monetary tightening and policy stimulus inaction.
During yesterday’s sell-off, China tested out its new system-wide circuit breakers linked to the benchmark CSI300 index, dominated by large-cap stocks. When there is a 5 percent move in either direction in the CSI300 index, trading is halted for 15 minutes. When that index moves 7 percent, the market closes for the day. Hong Kong does not have a circuit breaker.
Deutsche Bank said in a note Monday that the top 50 largest weighted constituents on the CSI300, which are mostly financials, property, and industrial names, accounted for 42 percent of the 7 percent loss yesterday. They are, the note suggested, more sensitive to macroeconomic developments and policy dynamics, and hence, “macro conditions and policymakers could have a greater influence on market trading.”
The bank also noted that the 5 percent/7 percent stop-trading threshold in China is comparatively lower than other markets, adding to volatility and possibly heightening concerns on market liquidity. In the U.S., if the S&P 500 moves reach 7 and 13 percent, trade is halted for 15 minutes and is then completely stopped when it hits the 20 percent mark in either direction.
Reuters reported that China’s securities watchdog, the China Securities Regulatory Commission, said Tuesday that it would continue to hone its circuit-breaker mechanism, but that its use on Monday had helped calm markets and protect investors’ interests. This was at odds with the views of market commentators, who blamed the circuit breaker for exacerbating panic selling by retail investors.
Before trading started, the People’s Bank of China set Tuesday’s yuan fix at 6.5169 against the dollar, compared with Monday’s fix of 6.5032, representing a 0.21 percent increase.
Other Asian equities ended Tuesday mixed. The Australian ASX 200 index closed down 86.075 points, or 1.63 percent, at 5,184.40, with an overall poor performance across all sectors. Energy and healthcare sectors were the big losers, down over 2 percent each, while financials lost 1.43 percent.
Angus Nicholson, market analyst at spreadbetter IG, said the ASX was playing catch up to Monday’s major global sell-off. “Considering