Chinese authorities suspended all trading on Monday by using their new circuit breaker rules after markets experienced steep losses following more disappointing economic data from the Chinese manufacturing sector for a tenth consecutive month.
The circuit breaker rules are designed to restrict market volatility, and take effect when there is a 5% drop in the market by halting trading for 15 minutes. If the market falls by 7%, all trading is suspended and the market closes for the day, which is what happened on Monday.
Fears over a global economic slowdown sent tremors across global markets. The FTSE100 and France’s CAC40 were down more than 2%, Japan’s Nikkei 225 fell 3%, the German DAX lost more than 4% and US equities were on course for their biggest one-day fall since September 2015. Commodity prices, especially copper, were also hurt by a sharp decline on fears of less demand from China. The People’s Bank of China allowed the Yuan to slide to a four-year low on Monday, adding more uncertainty to the market and fuelling investors’ fears.
For the long term investor, however, it is important to highlight that added care should be taken in such situations not to follow the crowd in a wave of negative sentiment. The nature of the stock market is that large drawdowns happen periodically, but history ultimately shows that these can be good times to add to long term investments rather than sell in panic.
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