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It’s only the
beginning of 2016, and China has once again placed itself in the
spotlight via market interference.
Beijing introduced a “circuit breaker feature” to its stock market, a
measure put in place to regulate trading, by placing temporary breaks
or suspension of trading for the day. The purposes of the breaks was
to supress excessive trading and control market volatility in the
market primarily comprised of retail investors, where sudden price
movements may lead to panic selling or buying.
On the first day of trading, their market’s “circuit breaker feature”
kicked in, triggered by a fall of seven percent in the CSI 300 index,
made up of 300 A-share stocks listed on the Shanghai and Shenzhen
Stock Exchanges.
This recurred on 7 January, shortly after the market opened, when the
CSI 300 fell five percent, triggering a 15 minute break. Following the
break, the index continued its freefall to seven percent, initiating
the suspension of trading for the day.
After just four days in operation, Chinese regulators announced that
they will cease use of the circuit breaker.
Although regulators installed the mechanism with good intentions, the
decision to stop it came following a negative feedback loop causing
retail investors to fear that they would not be able to liquidate if
new regulations are set.
The market may have also been susceptible to bad timing as well.
Following the July 2015 crash, new regulations were put in place for
new IPOs, and holders of more than five percent of a company’s stock,
forbidding them to sell for six months. Combining with the weakening
of the Chinese Yuan, the climate added to the fear that China’s
economy is struggling more than expected and that the weaker currency
will bring growth. |
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According to
global payment services provider, Swift, the Renminbi overtook the
Japanese Yen in August 2015, becoming the fourth most used payment
currency.
That figure is reflected in E&P Asia’s ‘Asian Business Foreign
Exchange Market report’, released in the same month, showing that
businesses across Asia were planning on increasing their usage of the
renminbi.
However, market volatility and uncertainty heavily impacts currency
usage. The impact of China’s yo-yoing economy and market interference
on businesses willingness to engage with the renminbi will become
clearer in the next round of the report, due in February.
The global economy in 2016 is likely to be flooded by concerns over
China, as they transition from an investment based to a consumption
based economy, with their potential debt issue and ever growing list
of problems.
Predictably, waves in the world’s second largest economy will cause
ripple effects in other markets.
In addition, self-serving governments and economic blocks are adding
to the global uncertainty. The Middle East with a strategy to starve
off energy competitors is dumping oil prices, currently at a 14 year
low with no floor yet in sight.
The US Federal Reserve and European central banks are beginning to
tighten monetary policy and increasing interest rates which
inevitability affect other economies.
All that we can be sure of for 2016, is that it will be a bumpy ride.
Opportunities will present themselves; investors will be able to
navigate with insight and market intelligence coupled with effective
execution to come up on top in 2016. |
