January 2016

Will 2016 Be A Red Wave of Uncertainty?

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.


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.

Top 3 currencies traded in Hong Kong

Source: East & Partners Asia – Asian Business Foreign Exchange Market (August 2015)






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