China late on January 7, 2016 removed the 'circuit breaker' mechanism
Hong Kong - AFP
Chinese equities bounced on another day of volatility across Asia on Friday as investors were panicked by Beijing's attempts to stabilise its beleaguered markets, with growing fears the global economy could be teetering.
China late Thursday removed the "circuit breaker" mechanism blamed for fuelling sharp sell-offs that shuttered mainland markets early twice in the space of four days, provoking losses on trading floors from Asia to Europe and the Americas.
Authorities also set the central rate for the yuan currency marginally higher against the US dollar, ending eight days of falls. A decision to set it at a five-year low was one of the catalysts for hefty selling globally Thursday.
Friday's initial response was positive, with reports saying Shanghai was given support by state-backed cash being used to prop up big-ticket firms.
The wild swings across Asia were reminiscent of the summer's China-linked worldwide turmoil owing to increasing concerns about Beijing's ability to control a slowdown in the world's number-two economy.
"There’s not a lot of stability in terms of policy management in China," said Matthew Sherwood, head of investment strategy at asset managers Perpetual in Sydney.
"They are very much making it up as they go... It causes large market volatility as people in markets don’t like uncertainty."
Shanghai rallied more than two percent at the open before reversing course and falling two percent into the red. It closed up two percent but was down around 10 percent over the week. Hong Kong ended 0.6 percent up.
Tokyo fell 0.4 percent having spent most of the day up following a negative start. The Nikkei suffered its worst start to a year on record, giving up seven percent in five straight losses.
Sydney eased 0.4 percent and Seoul added 0.7 percent, both of which drifted in and out of positive territory.
European dealers were seemingly not too impressed in early trade, having suffered sharp losses the previous day. London rose 0.4 percent, Frankfurt climbed 0.3 percent and Paris was flat.
Global investors have been alarmed by slowing growth in China's economy, which is expected to have expanded in 2015 at its slowest pace in a quarter of a century.
Friday's swings came after the China Securities Regulatory Commission said it was shelving the "circuit breaker" introduced at the beginning of the year.
The plan was brought in as part of a scheme to prevent the market volatility that wiped trillions of dollars off valuations in the summer.
But dealers said it instead heightened selling pressure from traders who were desperate to avoid being stuck with shares they did not want to hold.
Mainland markets closed early Monday as the breaker kicked in at a seven percent loss, while trade lasted just 30 minutes on Thursday.
Tuesday and Wednesday saw more stable trade, with reports billions of dollars of government cash was being used to prop up key stocks.
"Retail investors are unhappy and blaming the circuit breaker for not being well-tested," said Thebes Lo, Hong Kong-based vice president at Kim Eng Securities Ltd.
"Given the deteriorating economy in China, the government do not want to risk any social unrest. So they’re trying to comfort investors as much as they can in the near term."
Leaders' attempts to appease the nation's army of retail investors come just a month ahead of the Chinese New year celebrations, a time when hundreds of millions of people travel for traditional family gatherings.
Rumours circulated on China's Twitter-like Weibo that the head of the market regulator, Xiao Gang, had resigned over the debacle, which would be announced at the weekend.
The decision to strengthen the yuan rate lifted riskier assets, particularly emerging market currencies, including the Indonesian rupiah, South Korean won and India's rupee. The Malaysian ringgit and Australian dollar also rallied.
But Juichi Wako, a senior strategist at Nomura Holdings, said Beijing seemed to be struggling to get a grip on the situation.
"Chinese authorities need to take their time in maturing their market, but instead they're continuing to fumble through with trial-and-error experiments," Wako told Bloomberg News.
"Instead of taking superficial measures, they need to roll out policies in line with the bigger goals of the whole regime. Until then, we must be prepared for very high volatility in markets to continue."
- Key figures around 0830 GMT -
Shanghai - composite: UP 2.0 percent at 3,186.41 (close)
Tokyo - Nikkei 225: DOWN 0.4 percent at 17,697.96 (close)
Hong Kong - Hang Seng: UP 0.6 percent at 20,453.71 (close)
London - FTSE 100: UP 0.4 percent at 5,977.6
Euro/dollar: DOWN at $1.0882 from $1.0928 late Thursday
Dollar/yen: UP at 118.24 yen from 117.65 yen
New York - Dow: DOWN 2.3 percent at 16,514.10 (close)