Blog

The stock market circuit breaker if reintroduced will likely come with revisions that adjust its sensitivity, according to analysts, who added it couldn’t ruled out that the intended market-calming mechanism could

be shelved indefinitely.

Most analysts contacted by the South China Morning Post expected that the circuit breaker, suspended by Beijing late Thursday following a volatile kickoff to the trading year, will ultimately make a come back in one form or another.

Brett McGonegal, chief executive of Reorient Group, said introducing of the circuit breaker was a “trial and error game”, which was by no means an exact science.

“It will come back in a more appropriate format,” said McGonegal, adding it would be studied longer this time before its reimplementation.

“I think the range needs to be bigger as in 15 per cent maybe for a halt. And it should be volume based, not price based, meaning there should be a significant amount of trading taking place at the level,” he said.

The China Securities Regulatory Commission introduced the circuit breaker as a policy for the start of trade on Monday, only to remove it four days later.

As the time of its introduction, the CSRC cited abnormal market conditions last year as reasons for the mechanism designed to trigger stoppages in trade if the CSI300 index swings abnormally in percentage terms from the previous session’s closing level.

In a statement Thursday night CSRC spokesman Deng Ge said the regulator will evaluate the experiences of the past week, organise research on an improvement plan, and consult with various stakeholders to improve the mechanism.

Joshua Crabb, head of Asian equities at Old Mutual Global Investors, said he believed “the less government involvement in the market, the better.”

“The authorities can do other things to prop up the markets, like fixing the interest rates or fiscal stimulus...If they really want to reimplement the circuit breaker, they will have to make the range wider.”

Aidan Yao, a senior economist at AXA Investment Managers , said the circuit breaker China adopted was an example of well-intentioned policy backfired.

“The only problem is that policy makers have failed to grasp the implications of it for the market that is so retail-investor dominated, with a strong herding mentality,” Yao said.

The CSRC abruptly suspended the circuit breaker after it forced full-day shutdowns of trade on the mainland equity markets twice within four trading days. The market declines during the four-day period erased 7.05 trillion yuan worth of market capitalization.

Two senior A-share traders based in Shanghai said the chances were high that the circuit breaker would be killed altogether. They suggested the policy gaffe could even result in the ouster of Xiao Gang from his post as chairman of the China Securities Regulatory Commission.

“There should be some one responsible for what happened,” an unnamed trader said.