Emerging Markets, Stocks

As China’s Market Plunge Continues, $1.4 Trillion Locked As Companies Suspend Trade To Avoid Further Losses

China Slowdown2As markets in China continue to come crashing down, following their entrance into a bear market last Monday, and a continued fall which has erased over $3.2 trillion in valuemore than Brazil’s gross domestic product (GDP) or twice the size of India’s entire stock market, Chinese companies have found a solution to avoid further losses: suspend trading.

Amid the tumble in Chinese stocks, authorities have ramped up their efforts to curb further market losses: such as an interest rate cut (the fourth cut in seven months) to a record lowrelaxing of margin lending rulessuspending initial public offerings (IPOs) indefinitely, setting up a market-stabilization fund, and having its top 25 mutual fund houses speed up the application and issuance of equity funds.

Unfortunately, their “everything but the kitchen sink” approach has failed to work as losses have deepened in its daily whipsaw volatile trading.

The Shenzhen Composite Index has led the market crash with a 39 percent plunge since its June 12 peak, as margin traders continue to unwind bullish bets.

But rather than see their stocks crash further, Chinese companies have simply decided to suspend stock trading.

Following the close of trade on Monday, nearly 200 Chinese companies decided to suspend trading of their stocks, which brought the total number of suspensions to 745, or 26 percent of listed firms on mainland exchanges, according to Bloomberg.

The bulk of the suspensions were from companies listed in Shenzhen, which is dominated by smaller companies.

According to Bloomberg, these suspensions have locked up $1.4 trillion of shares, or 21 percent of China’s market capitalization, and have become increasingly popular as stock prices continue to tumble.

So far, China’s move that takes a page out of a dusty playbook from Wall Street circa 1929 has failed to stem a crash that’s wiping out its stock market at an unprecedented scale.

As illustrated below, courtesy of this Bloomberg chart, the crash in the Chinese stock market bears a striking resemblance to the market crash in the U.S. back in 1929.  The question is, how much more will China’s market crash?

Chart courtesy of Bloomberg

Chart courtesy of Bloomberg

Unfortunately, there appears to be no end in sight …at least for now.

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