Asia: China jitters trigger region-wide fear

Jitters about China turned into entirely justified fear in Asia on Thursday, as China's stock markets had their shortest trading day in history.

For the second time this week - and, in fact, the second time ever - China's new 'circuit-breaker' kicked in and froze trading just 30 minutes after the open.

The Shanghai Composite Index finished down 7.04% after the half-hour trading day, at 3,125. Its losses over the last four days now come to 11.7%, and could see the biggest weekly loss since the peak of the summer crash on 21 August 2015.

It was thought that the weakening of the yuan in the morning first triggered the losses, which then spread like wildfire across the region. Traders and analysts remained concerned about a weaker yuan causing capital flight, and a knock-on effect of currency depreciation in other Asian countries.

"People outside of China just go 'woah', and think the rest of the region should be bombing out as well", said Parry International Trading managing director Gavin Parry, saying China's Thursday losses set off a "contagion effect in sentiment".

China's loosely-pegged onshore yuan hit a new four-year low of CNY 6.5938 against the US dollar on Thursday, while the free-floating offshore yuan dived to new five-year lows, hitting 6.7511 to the dollar.

The circuit-breaker kicks in for 15 minutes after a 5% drop in the markets, and closes trading for the day if those losses deepen to 7%.

It was introduced on New Year's Day in a bid to prevent the kind of single-day losses China saw during its summer stock crash, but critics say it's panicking investors.

Christopher Balding, an economics professor at Peking University HSBC Business School, told Quartz that the 15 minute pause period created "a time when everyone can get their sell orders in".

When the markets then closed for the day, investors "wake up the next morning and think 'I have to take my money out'. It ramps up the panic mentality", Balding added.

The circuit-breaker was just one in a series of attempts from authorities in Beijing to control the markets, which have reportedly cost China's leaders $1trn (£686.66bn) in the last year.

Balding said China's finance regulators didn't appear to comprehend "what markets are, how they work or how they are going to react".

The regulators did release a statement in a bid to appease fears that the six-month selling ban on large shareholders was due to be lifted this Friday.

It said large investors would not be permitted to sell stakes of more than 1% of listed companies on the secondary market within three months, and investors who wanted to would need to issue a disclosure of their plans 15 days in advance.

Elsewhere, Hong Kong's Hang Seng fell 3.09%, Tokyo's Nikkei Stock Average dropped 2.33%, and the Kospi in Seoul was down 1.1%.

Down under, the S&P/ASX 200 lost 2.2%, while the S&P/NZX 50 slipped 0.78%. New Zealand's Christmas superstar A2 Milk led the losses, dropping 5.4%, as the exposure of its product to China caused worry among local investors.

In Australia, two relatively important data releases - building approvals and trade numbers - came through weaker than expected, with commodities and banking stocks hit the hardest.

BHP Billiton and Rio Tinto both fell 4.8% on the Sydney markets, while ANZ fell 3.2% and National Australia Bank 3.3%.

Oil was down in Asia trading, reflecting the general concern over future demand and supply in China. West Texas Intermediate hit $33.09 per barrel after 1100 GMT, and London Brent was at $33.54.

On the currency markets, the Australian dollar was weaker against the greenback, slipping 0.93% to AUD $1.4273. The Kiwi dropped slightly, to NZD $1.5072 against the USD.

Asia's shining star, the yen, strengthened again, up 0.69% towards the dollar to JPY 117.65.