China Stock Market In Turmoil After Trading Halted

Chinese shares plunge 7%, triggering a suspension of trading.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

After last summer’s Chinese stock market plunge, the authorities didn’t do anything to try to address the hyped-up bubble, the overheated property market, massive toxic debt riddling the country’s closed financial system and the huge drag of China’s state-owned enterprises.

No, they simply put in place a “circuit-breaker” rule that suspends trading for the day should the stock market fall 7% from its previous close. The new measure came into force only at the start of the New Year and it’s now been triggered on its very first day of operation. That happened after the CSI 300 index dropped by the requisite 7% – the Shanghai composite lost 6.9% while the Shenzhen Composite tech index fell 8%.

Trading had earlier been suspended for 15 minutes after a 5% fall, but the markets slid further on the resumption of trading after the latest factory data showed that China’s manufacturing sector has shrunk for five months in a row.

Contagion spreads

World markets responded with falls too and as I write the FTSE 100 is down 2% on the day to 6,115. Companies exposed to China are among the FTSE’s 20 biggest fallers of the morning – Standard Chartered is down 5.2%, HSBC Holdings down 2.9%, and Burberry Group has shed 3.2%.

Mining and commodities stocks are also among the big losers with Anglo American dropping 8.3% and Glencore down 6.6%.

What should UK investors do now? Well, don’t panic. For one thing, the Chinese stock market accounts for only a relatively small portion of the country’s huge economy and with a lot of investor cash chasing such a small pool of shares, it will inevitably be more volatile as a result.

And the latest economic update really shouldn’t have come as a surprise to anyone – I think it’s inevitable that China is heading for a longer slowdown than many of us had expected. It won’t be helped by the government sticking short-term plaster on the cracks rather than looking at the required longer-term economic reform.

No panic here

As for individual shares, I’ve already suggested that HSBC and Standard Chartered could be in for a tough year in 2016 and I wouldn’t buy them myself right now. But HSBC’s prospective dividend yield has risen to 6.4%, would still be adequately covered by earnings for this year and next, and the bank has a consistent policy of maintaining (and even lifting) its dividend through both good and bad times. I reckon there are better banking bargains to be had but I wouldn’t be going for a panic sell if I owned HSBC.

For a big fashion brand, Burberry is actually on quite a modest P/E of around 16 and with dividends yielding 3% and rising. I wouldn’t buy into fashion myself as it’s too fickle, but Burberry should be fine for the long term.

And then there are even shares such as Apple Inc, with sales of iThings in Asia being behind a fair bit of its growth – but a tough year or two in China isn’t going to do any serious harm there either.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Apple. The Motley Fool UK has recommended Burberry and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 51% in 2024, this FTSE 250 stock is flying!

This writer takes a look at one high-flying FTSE 250 share that still looks good value despite surging to an…

Read more »

Investing For Beginners

Here’s how I’m trying to prevent a stock market crash from ruining my portfolio

Jon Smith explains which shares he's avoiding and what he's thinking of buying to try and protect his portfolio from…

Read more »

Bearded man writing on notepad in front of computer
US Stock

Call me crazy, but here’s why I’m eyeing up the CrowdStrike share price

Jon Smith notes the carnage caused by Friday's global outage, but flags up why he's thinks the CrowdStrike share price…

Read more »

Investing Articles

What do Hargreaves Lansdown results mean for the share price?

The Hargreaves Lansdown share price has surged in recent months on takeover expectations, but what will the recent results mean…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Newly minted S&P 500 stock CrowdStrike just crashed! Here’s why

Shares of S&P 500 firm CrowdStrike collapse as the company lies at the centre of a global IT outage. What…

Read more »

artificial intelligence investing algorithms
Investing Articles

Is Nvidia heading for the mother of all tech stock crashes?

Nvidia stock has soared, and the company briefly became the most valuable on the planet. But not everyone’s an AI…

Read more »

Dividend Shares

The BP share price is down 15% in 3 months. Time to buy?

In the space of just a few months, the BP share price has fallen by a double-digit percentage. Is this…

Read more »

Investing Articles

A 5.4% dividend bargain I’ll buy over Lloyds shares

Harvey Jones loves his Lloyds shares but now he's found a high-yielding FTSE 250 stock that may offer even more…

Read more »