Equity Markets Move

It's been a rough week for equity markets around the globe: on Wednesday the NYSE suspended trading for over four hours, impacting nearly $28 trillion in listed stocks. NYSE indicated that the halt was a result of an "internal technical issue" and was in no way related to a cyber attack or other malicious activity. Employees of NYSE manually cancelled some 700,000 orders that were in the system at the time of the shutdown. While the NYSE is the largest exchange, it still only processes about 25% of daily trade volume, meaning the markets still had other resources like BATs and NASDAQ to turn to (where applicable). Still, the S&P 500 finished down 1.67% for the day, with the Dow Jones down 1.47%. The VIX Index, which reflects expectations for future volatility in the S&P 500, closed the day up over 22%. The NYSE experienced a similar glitch, and subsequent shutdown in trading, back in 2012, but that one only affected 216 listed securities. A shutdown this large in scale hasn't occurred since the aftermath of September 11th and later Hurricane Sandy.

Not all of the downward slide in equities can be attributed to the glitch at NYSE though, as markets are also digesting news about Greece and the continued decline in Chinese equity markets. Wednesday also brought big moves by the Chinese government meant to bolster their falling equity markets -- shareholders with more than 5% stakes in a listed company were banned from selling, and the Central Bank began direct intervention into the equity market (through the Chinese Securities Finance Corporation), buying shares in listed companies in order to prop up prices. China had previously frozen IPOs, hoping to help boost prices by limiting supply, and had halted trading in some 2,000 stocks (nearly 72% of the market) as a result of a wave of selling activity.

The Shanghai Stock Exchange Composite Index is down over 31% from June 8th to July 8th, with a 5.9% fall on Wednesday alone. Foreign investors have little exposure to the Chinese domestic market, as overseas investment is still heavily restricted by the Chinese government. As a reasult, these declines are mainly hitting domestic Chinese investors, leading to extended government intervention as a result of fears that the equity collapse will hurt domestic demand in China, and slow down the economy as a whole. Even though the losses in the Shanghai Index are limited to domestic investors, the downward pressure building in Chinese markets is beginning to spill over to the Hang Seng in Hong Kong as well, which also fell 5.84% on Wednesday, though it was only down about 14% from the second week of June. Foreign investors have significant exposure to equities in the Hang Seng, having used it as a means to gain exposure to the rising tide in China for quite some time. Both markets bounced back yesterday. The Shanghai Index nearly erased its losses from Wednesday while, interestingly, the Hang Seng only recovered about 3.7%.