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China’s Problems Shake Global Stock & Oil Markets

  • Jim Randle

Investors gather near a display board showing the plunge in the Shanghai Composite Index at a brokerage in Beijing, China, Thursday, Jan. 7, 2016.

Investors gather near a display board showing the plunge in the Shanghai Composite Index at a brokerage in Beijing, China, Thursday, Jan. 7, 2016.

Major financial markets in Europe fell sharply early Thursday, after China again suspended stock trading because of a massive sell-off.

Beijing's securities regulator cut off trading just 14 minutes after the benchmark Shanghai Composite Index opened Thursday. By then, it had already tumbled 7.3 percent, while the smaller Shenzhen Composite Index slumped 8.3 percent.

It was the second time this week that the so-called "circuit breakers" were used to suspend trading. The circuit breaker was employed by Chinese officials after last summer's volatile exchanges and sell-offs.

The trading halt rattled investors, sending other Asian markets lower and weakening the value of the Chinese yuan currency by 0.51 percent against the dollar - its lowest level since August.

Japan's benchmark Nikkei 225 index fell 1.8 percent and South Korea's Kospi lost 1 percent. Hong Kong's Hang Seng shed 2.6 percent, while Australia's S&P/ASX 200 retreated 2 percent. Benchmarks in Taiwan, New Zealand and Southeast Asia also fell.

In New York, the Dow and the S&P 500 fell 2.3 percent or more, while the NASDAQ dropped around three percent by the close of trading. In Europe, the CAC in Paris fell 1.7 percent while London’s FTSE dropped 2.7 percent.

'Perfect storm'

The losses mark one of the worst starts to a trading year in decades.

Experts describe investors being hit by a "perfect storm" of incidents: weak global growth - particularly in China, which is growing at its slowest pace in a quarter-century - a slump in oil prices and regional tensions, including North Korea's claim it tested a hydrogen bomb Wednesday.

"It's been hard to catch a breath in 2016 and traders haven't really known which way to turn," Chris Weston, chief market strategist in Melbourne at IG Ltd., told AFP. "For risk assets to stabilize and sentiment to turn around, we are going to need a stable or even positive move in the Chinese currency."

Regulatory moves

The China Securities Regulatory Commission (CSRC) also issued new rules Thursday that it hopes will stabilize market expectations, Reuters reported.

Among the rules, major shareholders must not sell more than 1 percent of a listed company's share capital through stock exchanges' centralized bidding system every three months, the regulator said. The new rule takes effect January 9.

In addition, the CSRC said major shareholders must file their plans 15 trading days in advance of sales.

The CSRC said Wednesday it would keep in place rules, which had been set to expire this week, that prevent shareholders who own more than 5 percent of a company from selling off shares.

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