The Chinese stocks rose more than 2% after the securities regulator suspended the circuit breaking system. The regulators announced the suspension of the newly introduced circuit breaker mechanism just four days from its initiation. According to market experts, it failed to work as anticipated in real situations and was found to be doing more bad than good.
The circuit breaking system had already disrupted the trading twice in a week since its introduction and has been accused of exacerbating the market.
Following the rise in Chinese stocks, the Hong Kong shares also gained and showed stabilization signs in the mainland markets. The Chinese Stock Index (CSI) 300 rose by 2.8% gaining 3,384.99 as the morning session ended and the Shanghai Composite Index (SCI) rose by 2.4% gaining 3,199.56 points.
People’s Bank raises Yuan rates
Following the suspension of the system, the People’s Bank of China has also increased its guidance rate for Yuan. It is the first time in nine days that the bank has raised Yuan price after it allowed the biggest fall of the currency in last five months causing distress among the investors as it disrupted the trading of global stock markets and regional currencies almost leading to competitive devaluations.
According to a Barclays Plc, Singapore’s foreign exchange strategist, Dennis Tan, the PBOC never expected China and global stock markets to react so badly to the depreciation in Yuan, and hence, they are trying to stabilize the Chinese currency to steady the stock market. The bank set the daily fixing of Yuan restricting the onshore moves to maximum 2% at 6.5636/dollar on either side which is 0.5% on the higher side of the onshore effective closing price on Thursday.
The Chinese Stock Index lost approximately 12% in just four days of its trading in 2016 losing almost all the gains it made in 2015. The circuit breaking system was introduced in January 2016 but was immediately looked down upon as it caused an initial break in the trading and after a rush in the sell, it permanently halted the trade.
According to an analyst at the Kaiyuan Securities, Tian Weidong, the market has bounced back to normalcy, and the investors can now sell and buy as they normally do without any suffocation from the circuit breaker mechanism.