China Stock Market Halted Following Another Dive

Chinese stocks fell more than seven percent on Monday, triggering a circuit-breaker mechanism that shut down trading for the day. The mechanism came into effect Monday, and was implemented in an effort to avoid a repeat of the market crash in China this summer.  
Markets fell on the back of a weak outlook for China’s manufacturing sector. However, a number of market watchers have suggested that the mechanism itself may have worsened the drop. When China’s CSI 300 Index falls five percent, that triggers a 15 minute halt. If the market falls further than seven percent, markets shut down for the day.
As Bloomberg notes, it took just seven minutes for the market to reach that seven percent threshold (after trading resumed following a 15 minute halt triggered by a five percent drop). “Investors rushed to the door during the level-one stage of the circuit breaker as they fretted the market would go down further,” William Wong, head of sales trading at Shenwan Hongyuan in Hong Kong, told the publication.

As the CBC notes, most major stock indexes have similar mechanisms. “In North America, a sudden stock market decline of seven per cent would trigger a 15-minute market shutdown. A decline of 20 per cent would trigger a shutdown for the rest of the day,” the news outlet explained.
Huang Cengdong, analyst at Sinolink Securities in Shanghai, told the publication, that he does see the market improving, and that he expects “heavy selling in the near future.”
Chinese authorities have been aiming to improve confidence in the market following this summer’s Black Monday, but many were quick to criticize in the wake of Monday’s fall:

China’s stockmarket crashes—again https://t.co/eOXeVlMMqQ pic.twitter.com/8zeQS08xLk

— The Economist (@EconEconomics) January 4, 2016

There are 99 million investors in China’s $7 trillion stock market and none of them have more than a decade’s worth of experience. Enjoy.

— Downtown Josh Brown (@ReformedBroker) January 4, 2016
 

Global markets slip

Worries over China triggered falls in stock markets around the world on Monday. At the time of writing, the Dow Jones Industrial Average (INDEXDJX:DJI) was down 424 points to 17,000, having earlier dropped as low as 16,961. The Nasdaq Composite Index (INDEXNASDAQ:IXIC) was down 2.82 percent to 4,866 while the S&P 500 (INDEXSP:INX) was down 2.32 percent to 1,996.
North of the border, the S&P/TSX Composite Index (INDEXTSI:OSPTX) was down 1.36 percent, or 177 points, to 12,832. The S&P TSX Venture Composite Index (INDEXTSI:JX) was relatively flat, losing just under two points.

Furthermore, growing tensions between Saudi Arabia and Iran are also playing a part in things; Saudia Arabia said over the weekend that it would cut ties with Iran following the storming of its embassy in Tehran.
“The China seven per cent drop last night and the close of the market, along with Saudi Arabia, are causing investors to rethink their growth estimates and the geopolitical risk that’s really out there,” Paul Mendelsohn, chief investment strategist at Windham Financial Services told the CBC.
Both oil prices and gold prices were on the rise on Monday, with spot gold gaining 1.34 percent to trade at $1,075 per ounce, and oil rising as high as $38.22 per barrel before dropping around 10:40 a.m..
 
Securities Disclosure: I, Teresa Matich, hold no direct investment in any of the companies mentioned in this article.