Asia: Chinese 'circuit-breaker' jitters rebound around region

China's red dragon was left flailing by the time the markets closed on Monday, having been maimed by a new official measure after suffering some serious losses earlier on.

The Shanghai Composite Index fell 6.86% - the biggest first trading day decline ever - before authorities put a stop to trading. The technology-focused Shenzhen Composite fell 8.22%.

It was the first time the so-called circuit breaker system was put in place on the Chinese markets. Officials announced the system in December, as part of their plans to avoid the rollercoaster-like trading conditions that led to the summer stock crash.

The circuit breaker was triggered just after 0515 GMT, when the CSI 300 - a benchmark of Shanghai and Shenzhen's top 300 stocks - fell by 5%. That automatically set off a 15 minute trading halt.

A further slide to 7% triggered a second circuit breaker, this time for the remainder of the trading day. According to data from Wind Information, moire than 1,200 stocks across both Shanghai and Shenzhen fell by the 10% daily downward limit.

Authorities said the system would help markets "cool off in order to prevent the spread of panic sentiment, which may exacerbate volatility", when they announced it in December.

Some analysts remained wary of the circuit breaker, however, saying the circuit breaker could spook investors and lead to fear-driven selling.

"The circuit breaker system actually creates a downward spiral", said Bank of Communications managing director Hao Hong.

"Having this so-called system in place is actually making the selling worse."

Monday's fall was a marked difference to the Chinese rebound seen in recent months. Stocks in the country had come back from their summer lows by more than 20%.

The losses started after an unofficial reading of factory conditions showed a 10th straight monthly contraction for the sector in December - suggesting more stalling in the Chinese economy.

The Caixin China Manufacturing Purchasing Managers Index fell to 48.2 last month, from 48.6 in November. A figure less than 50 represents a contraction.

Nerves were also building ahead of this Friday, when a six-month selling ban expires. Authorities put the ban in place on 8 July 2015 in a bid to counteract the downward spiral in the markets at the time.

"Contrary to reports, the fall in the Chinese stock market has little to do with the December PMI data", said Hargreaves Lansdown head of investment research Mark Dampier.

"It has far more to do with worries that major shareholders will reduce their positions after the (lifting of the) ban of share sales and short selling which comes in at the end of trading on Friday."

China's central bank also guided the renminbi significantly lower on Monday, surprising investors. Its daily fix was set at 6.5032 CNY against the USD, its weakest position since 2011. The onshore yuan can float 2% above or below the loose peg - it reached as low as 6.5318 late in the day.

"Psychologically (the shift) was a big move - going through 6.50. There's been a lot of surprise in the market that China hasn't slowed this decline or come in more aggressively", said Barclays Singapore head of foreign exchange strategy Mitul Kotecha.

The general mood in China had an effect across the region, with the Nikkei Stock Average sliding 3.06%, the Hang Seng losing 2.68% and Seoul's Kospi slumping 2.17%.

Down under, Sydney's S&P/ASX 200 fell 0.48% with its losses offset by a 3.05% jump in the energy sector, led by gains in oil. Wellington remained closed due to New Zealand's extended New Year holiday.

Australia's financial sector posted big losses, with the Commonwealth Bank losing 1.3% to AUD$84.46 (£41.20) and Westpac Banking Corporation sliding 1.7% to AUD$33.00.

One of the country's most noted retail brands was in trouble, however, with Aussie pundits warning that electronics chain Dick Smith would likely struggle to re-finance its debt after the company voluntarily suspended trading, pending an announcement about its "funding position and debt financing covenants".

The chain had struggled in recent years, with many analysts citing a failed 2008 rebrand when it moved from a specialist components focus to a consumer-oriented brand. Dick Smith was sold by Australian grocery giant Woolworths in 2012, and spun off as a public company by private equity investors in 2013.

At 1120 GMT, Brent was up 2.05% to $38.05 a barrel, while West Texas Intermediate was up 1.07% to $37.44 - gains which helped the southern continent to avoid some of the losses seen in other parts of the region.

Currencies generally followed China's lead on Monday, with the Aussie dollar weakening 1.21% against the greenback to AUD$1.3860, and the Kiwi sliding 0.81% to NZD$1.4760. The yen was the odd one out, gaining 1.39% to JPY 118.88.