Shanghai stocks open down 3.02%; slightly recovers

Investors react in this June 26, 2015 file photo, as they check stock prices in a brokerage house in Fuyang in central China’s Anhui province. Chinese stocks continued to plunge on Tuesday, January 5, 2015, following a 7 percent fall on Monday. The markets slightly recovered by midday. AP

SHANGHAI, China — Shanghai stocks plunged 3.02 percent at the open on Tuesday in what dealers described as panic selling, extending a near seven percent rout a day earlier that triggered an unprecedented early close.

The benchmark Shanghai Composite Index slid 99.61 points to 3,196.65 while the Shenzhen Composite Index, which tracks stocks on China’s second exchange, tumbled 5.03 percent, or 106.55 points, to 2,012.61.

The Shanghai index slumped on Monday over concerns about the health of the world’s second-largest economy after the release of weak manufacturing data, with the 6.86 percent fall sending a wave of selling through global markets.

BACKSTORY: China manufacturing worsens in December — survey | China stock markets fall 7%; trading stopped Monday

Regulators halted trading early on Monday, the first day a new “circuit breaker” mechanism was in place.

Under the system, a five percent drop in the CSI300 index, which covers both bourses, triggers an automatic 15-minute trading halt. A fall of seven percent means the two exchanges are closed for the rest of the day.

“The market is worried that about the new circuit breaker and investors tend to avoid risk when they see uncertainties. There was excessive panic selling after the circuit breaker was triggered yesterday,” Haitong Securities analyst Zhang Qi told AFP after Tuesday’s drop.

“The sharp falls should only be short term and the market will recover after it calms,” he added.

Chinese markets recovered by mid-morning Tuesday, with Shanghai gaining 0.95 percent and Shenzhen edging up 0.06 percent.

The market watchdog, the China Securities Regulatory Commission (CSRC), sought to calm the panic by defending the circuit breaker.

“The circuit breaker has a big impact in stabilising the market and its main function is to provide a ‘cooling off period’ for the market to avoid or reduce rushed decisions made during wide swings,” it said in a statement on its verified microblog.

Investors also worried about the looming expiry, due on Friday, of a ban preventing big shareholders with holdings of more than five percent in a company from selling shares — introduced in July to help defend prices.

The CSRC said on Tuesday that it is formulating regulations on major shareholders selling of their stakes, but said the rules will be announced “soon”, leaving open the question whether the ban will be lifted in line with the original deadline.

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