Trade on the Chinese slowdown

January 2016 - Chinese chaos kicks off 2016

Worries over China’s ability to keep up its rapid pace of economic growth dramatically increased when PMI data came in weaker than expected, meaning China’s contraction had now lasted ten months – and causing chaos around world markets. 

For the first time, Chinese regulators activated a suspension in trading as a circuit breaker safety measure. As in August 2015, state-directed buying of stocks competed with individual selling of equities, but China’s attempt to ‘buck the market’ failed.

The butterfly effect was also felt in Europe, with an initial bounce giving way to more selling, while in London the FTSE fought hard to hold on to small gains. 

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7 January – The selloff continues

Later in the week, the CSI 300 was in freefall once again – trading for just 29 minutes before the circuit breaker closed the index for another day. It was becoming clear that the measure implemented by Chinese regulators to induce calm into panicked markets was having the opposite effect, causing frenzied attempts to sell before the exchange closed once more. 

And fears over China’s economic strength plagued markets around the globe, with the FTSE 100 and S&P 500 facing 5% losses from the start of the year. Commodity stocks and commodity prices were particularly affected, as traders faced up to a year in which China could drastically reduce its oil and metal consumption.

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8 January - A measure of calm

The following day saw indices on the rise once more, after the Chinese regulator decided to abandon the circuit breaker measure and allow selling to continue past its 7% threshold. The move was hailed as a step in the right direction by many analysts, as traders’ fears of getting locked in to a freefalling market abated.

However, doubts over China’s economic performance in 2016 still persisted and key indices were still facing major losses from the beginning of the year.

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25 January – Concerns surface once more

After two weeks of relative calm, the CSI 300 entered another period of heavy selling at the end of January, with investors growing concerned once again that capital would flow out of China’s stock market as its economic growth stalled.

For the first time since its circuit breaker was removed, the Chinese regulator saw the CSI drop more than its 7% limit in a single day. However, this time market fears were far more localised – the FTSE and Dow Jones increased in value as the China 300 dropped.