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The Daily

Chinese Stock Woes Rattle World Markets

Chris Gaetano
Published Date:
Jan 7, 2016
ChinaTrading in China lasted all of 29 minutes today before being shut down, the latest in a series of massive and sudden sell-offs this week that have left markets around the world worried whether this is a sign of a greater problem unfolding, according to the New York Times. The trouble began Monday with key Chinese indexes plummeting in value, tripping the first ever use of the country's circuit breaker system that suspends trading if things get too volatile. Following a tense but slightly more stable Tuesday and Wednesday, today stocks fell more than 7 percent within less than a half hour of opening, which yet again tripped the circuit breaker rule, leading once more to trading being suspended. These events have rattled markets in other countries: for instance, the Dow Jones Industrial Average dropped more than 250 points this week partially over what happened in China, though the Wall Street Journal said concerns over falling oil prices also played a part. Thursday's sell-off, according to the Times, came when traders were already concerned that the Chinese economy was slowing down. When news that the central bank was going to let the yuan's value drop half a percentage point, the sell-off quickened, as market players wondered whether this was a sign China was planning to stimulate exports to shore up losses

An article in the International Business Times posits that the circuit breaker rule itself might be contributing to the instability, in that halts to trading, far from letting people gather their wits, can actually cause even more panic among investors, who see the pause as a signal that they should begin selling as soon as trading resumes. Chinese regulatory authorities are aware that the system might need some extra work, such as expanding the threshold for which trading is halted, and suspended its use today, according to Bloomberg

Also contributing to the sense of doom, according to CNBC, was that a ban China had placed on institutional investors on selling too much at once, placed this past summer the last time China's markets had a similar plunge, was set to soon expire, leading to fears of a massive sell-off now that these large players could finally unload their shares. Today, instead of the ban being lifted entirely, it was replaced by a new rule saying that major investors can sell no more than 1 percent of a company's shares on the open market every three months, according to the Washington Post