China’s stock market started off 2016 with a sharp slide that triggered new market control mechanisms, and a sudden reversal in property shares helped lead the way down.
Major mainland-listed developers including Greenland Group, Poly Real Estate and Gemdale all fell by close to the daily limit of 10 percent before trading was automatically halted on the Shanghai exchange.
A seven percent overall drop in the CSI 300 Index by mid-day, triggered a new “circuit breaker” put in place by the government effective today, and provided what many see as an inauspicious start to the year after investors suffered wild market swings in 2015.
Developers Reverse Months of Gains
While many investors have expressed optimism regarding the property sector in recent months as the government vows targets the industry for support in the new year, that rosy view faded quickly on the first trading day of 2016.
Shares in Shanghai-listed Greenland, a top three developer by sales, were down by 9.98 percent before trading was halted at 1:33 pm. Poly and Gemdale faced similar challenges with their shares falling 10.00 and 9.96 percent respectively on the Shanghai bourse.
Today’s market slide wiped out half of the gains in the Shanghai Property Index over the past three months, as the index dropped 7.75 percent after the measure of developer shares had risen more than 15 percent over the three months ending December 31st.
Even developer shares in Hong Kong were affected with recent top performer China Vanke seeing its share price flat today, while Evergrande Real Estate fell by 5.57 percent on the Hong Kong bourse and Wanda Commercial Properties fell by 4.42 percent.
Taking the New Circuit Breaker for a Test Drive
The trading halt came after all of the major mainland bourses saw losses early and often today. The Shanghai composite was the healthiest, dropping 6.85 percent, while the Shenzhen composite fell by 8.19 percent. The smaller ChiNext exchange also fell by 8.21 percent.
Analysts blamed today’s poor performance on a new round of discouraging economic data published at the end of the month, the impending end of a government-imposed ban on share sales, and the circuit breaker itself.
Authorities in Beijing had placed a six month ban on share sales by major shareholders in the A-share market at the end of July following a major drop in the market. Many analysts anticipate significant selling when that ban expires on Friday.
The circuit breaker was put in place by the government to try to fend off future market panics by asserting more government control over investors’ ability to buy and sell shares. The mechanism will provides for share trades to be suspended for 15 minutes when the CSI 300 moves by 5 percent, with trading for the day being halted if the index moves by 7 percent.