China will, from tomorrow, suspend its new stock market circuit-breaker mechanism – designed to stop free-falling prices, the Shanghai and Shenzhen stock exchanges have said.
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%.
That circuit-breaker was activated twice this week alone. It was triggered within half an hour of trading this morning.
That gave China’s stock markets their shortest trading day in 25 years.
A BBC report said the renewed share suspension in China caused global shares to fall sharply, today, with Wall Street opening more than 1% lower and European markets trading 2% down.
“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.
According to the BBC report, meddling in markets can only lead to misery – at least, that’s certainly what many in China’s financial circles may now be thinking.
The circuit-breakers were designed to “protect investors and calm markets”, according to regulators, but they have had the opposite effect.
Analysts have criticised Chinese authorities for not being clear enough in their communication to the market, and for being too heavy-handed in their attempts to control share prices.
This move may well rattle the confidence of investors even further. Watch out for more volatility tomorrow (Friday).