Asian stocks fall as China halts trading after market plunge

Chinese stock market shares plunged more than seven percent for second time this week forcing suspend of trade

Photo by: AP
Photo by: AP

A investor rests near a display board showing the plunge in the Shanghai Composite Index at a brokerage in Beijing, China, on Jan. 7, 2016

Chinese stocks nosedived on Thursday, triggering the second daylong trading halt of the week and sending other Asian markets sharply lower as investor jitters rippled across the region.

The benchmark Shanghai Composite Index tumbled 7.3 percent to 3,115.89 before new "circuit breakers" suspended trading for the day. The smaller Shenzhen Composite Index slumped 8.3 percent to 1,955.88.

Another index, the CSI 300, fell 7.2 percent. The trading halt mechanism is based on whether that index swings more than 5 percent up or down. Trading halted only 13 minutes into the morning session. Stocks plunged further after trading resumed 15 minutes later, triggering the daylong trading freeze.

Government measures introduced last year to prop up share prices are being gradually withdrawn while investors are also unnerved by possible signs the country's economy is in worse condition than thought.

The latest slump comes after China's government guided the yuan sharply lower, in a sign that authorities are prepared to weaken the tightly controlled currency to boost flagging exports. The yuan rate was set Thursday morning at 6.5646 to the U.S. dollar, the weakest in nearly five years, the official Xinhua news agency reported, citing data from the China Foreign Exchange Trading System.

The Shanghai benchmark has now dropped 12 percent so far this year, which is barely a week old. Thursday's market plunge may have been exacerbated by investors rushing to sell before they were locked out, some analysts said.

"After today's low opening there was some apparent panic selling with investors trying to reduce exposure before the mandatory triggers," said Gerry Alfonso, trading head at Shenwan Hongyuan Securities in Beijing.

"Sentiment seems to be rather fragile at the moment as the soft macroeconomic environment together with the fear of not being able to sell during a market correction causing some anxiety among investors," he wrote in a note to clients.

Japan's benchmark Nikkei 225 index fell 1.5 percent to 17,920.61 and South Korea's Kospi lost 1 percent to 1,905.51.

Hong Kong's Hang Seng shed 2.4 percent to 20,479.39 and Australia's S&P/ASX 200 retreated 2 percent to 5,020.40.

Benchmarks in Taiwan, New Zealand and Southeast Asia also fell.