China halts trading after stocks plunge 7%

Stock exchanges halted trading on the first day so-called circuit breakers came into effect. If after trading has resumed and stocks fall by 7%, it will halt trading for the rest of the day.

Other stock markets in the region also started the new year on a weaker note. Chinese officials may take action to prop up the markets, but keep your eyes on the balance of trade, import, and export data due on Friday as this is a market mover and will tell the full story of what’s going on in China. China’s relatively expensive and highly speculative start-up board ChiNext tumbled over 6 per cent.

The central parity rate of the yuan, weakened by 96 basis points to 6.5032 against the US dollar on Monday, according to the China Foreign Exchange Trading System. The Hang Seng index dropped 2.3 per cent to 21,409.39 points, while the Hong Kong China Enterprises Index lost 2.8 per cent to 9,393.07.

Heightened geopolitical tensions added to the downbeat tone, as Saudi Arabia severed diplomatic ties with Iran after protesters stormed the Saudi embassy in Tehran following the execution of Shiite cleric Nimr al-Nimr on Saturday.

“The Caixin China Manufacturing Index for December fell to 48.2 which, being below 50, indicates contraction and underlines the continuing evidence of weakness in the manufacturing sector”.

The survey showed output, employment and new orders all declined, triggering a wave of selling on share markets across Asia, including in Australia.

Beach Energy added 6.1 per cent to close at 52 cents.

The falls followed poor data from official and private surveys of manufacturing in the world’s second-largest economy.

“The market is in risk off mode as we have started the new year, with China causing concerns as well as the war of words between Saudi Arabia and Iran”, said Hughes. Chinese policy makers, who went to unprecedented lengths to prop up stock prices during a summer rout, are trying to prevent financial-market volatility from weighing on an economy set to grow at its weakest annual pace since 1990.

The offshore yuan fell as low as 6.6331 to the dollar, its weakest since September 2011.

South Korea’s manufacturing activity for December expanded for the first time in 10 months with the Nikkei/Markit Purchasing Managers’ Index (PMI), a measure of factory activity, climbing to 50.7 on a seasonally adjusted basis, from November’s reading of 49.1.

The cautious mood toward riskier assets helped the yen, which rose to 2 1/2-month high of 119.685 to the dollar.

Investors are wondering how much further the U.S. Federal Reserve will raise rates this year after last month’s rate increase, the first in nearly a decade.