China's Stock Markets on a Downward Spiral as, Most of the Listed Companies Halt Trading

Today morning, China's Shanghai Stock Index was down by 8 per cent, despite the  government’s measure to boost up the falling market. The Shanghai Composite Index dropped by more than 6 per cent and the Shenzhen Composite Index was down by more than 4 per cent.

Bloomberg news reported that around 43 per cent of listed companies halted trading on Chinese exchanges, accounting for 1249 companies in an attempt to prevent further losses. As a result of stock market collapse, with so many companies suspending trading, it will hurt market liquidity. China’s securities regulator reported that  there was “panic” in the stock market with an increase in irrational selling off  “leading the stock market to a situation of intense liquidity.”

Earlier, the Chinese Government announced new measures to support the market. The measures include allowing insurance companies to invest more equity assets and preference to buy the shares of smaller companies. Also a surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other "stability measures" offered to investors in order to prevent panic selling from the market. Despite  these measures the China market continued to decline over the last few trading sessions. 

As per the official Xinhua news agency, the insurance companies are now allowed to invest 10 per cent of their assets in a single 'blue chip" stock, up from the previous limit of 5 per cent. Further, the state-backed China Securities Finance Corporation is now encouraging stock purchases in small and medium sized companies.

Since this June, the Chinese shares depreciated by around 30 per cent in value. Further, some global investors fearfully perceive  that the Chinese market will diminish the real economy and will become now a bigger risk than the Euro zone crisis.

The China Securities Regulatory Commission (CSRC) also said there would be a temporary halt to initial public offerings (IPOs), which tend to drain funds from the rest of the market, hurting prices and sentiment. In the middle of June, China’s stock markets touched a seven-year peak and it was the top performer among world markets. The Shanghai stock market had climbed more than 150 per cent in just 12 months. However, it has fallen by more than 30 per cent over the last three weeks with a  12 per cent fall within the last week.