Trading in Chinese stocks halted after prices plunge

Trading in Chinese stocks was halted on Monday following a plunge in share prices.

The Shanghai Stock Exchange’s Composite Index was down by 6.86% to 3,296.26 points before trading was halted for the rest of the day.

In parallel, the CSI 300 index was off by 7%. An initial drop of 5% led to a first trading halt being imposed, with a subsequent slide triggering the suspension of trading for the rest of the session.

Some brokers referenced weak data on the state of Chinese manufacturing and geopolitical tensions in the Middle East as the chief factors behind the fall.

Early on Monday morning, survey compiler Markit revealed that the Caixin manufacturing sector purchasing managers’ index retreated from a reading of 48.6 in November to 48.2 for December (consensus: 48.9).

“Overall, the data highlights the fragility of the Chinese manufacturing sector. It should be noted, however, that the decline in Caixin PMI manufacturing comes after two months of decent increases but nevertheless it was surprising that it suffered a setback in December.

“While disappointing we do not believe it justifies a 7% decline in the stock market. But clearly tensions in the Middle East are playing a role as well for markets this morning,” analysts at Danske Bank said in a research note sent to clients.

However, Alberto Gallo, head of macro strategy at RBS, was considerably more cautious, telling clients that: "There is no spare room for a large-scale stimulus as was the case in 2008. Meanwhile, the Chinese economy remains imbalanced, after eight years during which the stock of fixed asset investment doubled, and private debt with it. Economic rebalancing will last a long time, with serious spill-over effects on other Emerging Markets."

On a brighter note, Caixin’s non-manufacturing PMI, also released on 2 January, rose quite strongly, to hit the 54.4 point mark, up from 53.6 in the month before.