Experiment failed. The volatility in Chinese markets only allowed 29 minutes of trading today and the powers that be have had enough, they removed the circuit breaker rules so traders can trade and investors and get in and out. It is clear from this action that what works in other markets does not work in a market that is under the thumb of the Chinese Politburo -it is simply too volatile. Applying US based Capital Market tactics to a government controlled market does not work. Some question if circuit breakers in the US markets will ever work effectively.
No one wants markets to be closed, but historically closing markets from Gold to Soybeans gave investors some time to stand back and think through what was best. In China investors in a trading hall near Beijing, only popped out for a few minutes of fresh air when and came back to find the market already closed. "I had not heard of the circuit breaker before this morning. Can anyone tell me what it is for? Is it a good policy for us small investors?" said one local investor.
Over 20 retirees milled around the communal hall before the large blank screen that would normally carry prices. Most stayed to finish their packed lunches or to play lively games of cards anyway. "We are retired. What else do we have to do?" asked one.
Outside Shenyin Wanguo Securities in Shanghai, disgruntled investors aired their grievances about the circuit breaker policy loudly and angrily. "This policy is unnecessary because we already have the rule where any stock that falls more than 10 per cent is halted immediately anyway," said an investor who gave his surname as Zhang, and declined to give his first name.
Few brokers got an early cut despite the short trading session. Financial adviser Wang Li, of Huatai Securities, wrote on her verified microblog account on Weibo that "As a member of the industry, I have to point out that we don't get to get off early! Securities trading is just part of Huatai's business . . . I'm getting back to work, please stop asking if I get to leave early today."
Back at Dongzhimen, some punters talked investment strategy. "I'm going to take everything out tomorrow," said one. Terrible idea, replied his interlocutor: "People like you are causing the market to drop so fast."
Looks like Chinese officials are listening as the circuit breaker experiment is tabled for now...stay tuned.
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