The circuit breakers the PBOC imposed added to not stemmed the panic twice in just four days. That might be some kind of panic in itself. These circuit-breaker rules — which US markets also have — are put in place to stop trading in the event of some malfunction in equipment or to stem a market panic.
The past few days of action in China have indicated more of the latter more than the former.
REUTERS
But as Chris Weston, chief markets strategist at IG Markets in Melbournetold Business Insider Australia, this week's action exposed some flaws in these rules.
For one, the distance between the level that triggers a temporary halt — a 15-minute pause takes place after a 5% drop — and a full-day stop, which happens after 7%, is simply too narrow.
"When the market hits 3.5% to 4% we see everyone panic and put in their sell orders," Weston told Business Insider Australia. "When the 15-minute window ceases, the market shoots through to 7% straight off the bat. The distance between the two needs to be wider — otherwise we are going to see this happen time and time again."
Bloomberg News' report on the chaos that broke out in the Chinese stock market on Thursday also captured this feverish rush to sell that Weston mentioned. But the entire premise of even having markets — whether they be markets in oranges or stocks — is that the market itself will give participants, the buyers and the sellers, time to find one another. When trading takes place for only 10% of what's anticipated, that mechanism would seem to break down.
On Thursday morning, stocks in the US were selling off as global markets deal with the aftershocks from the chaos in China. And while the circuit-breaker rules are in place to keep panics from spreading, it seems that perhaps Chinese authorities think the opposite effect has been achieved.
http://www.businessinsider.com/china-stock-market-halt-suspended-2016-1
No comments:
Post a Comment