Expert comment on trading suspended on the Chinese stock market

If you are looking for expert comment on trading suspended on the Chinese stock market then here is Kamel Mellahi, of Warwick Business School, who is a Professor of Strategic Management and researches business in China.

Professor Kamel Mellahi said: "The efficacy of the circuit breaker is questionable in a highly volatile environment driven by a herd mentality. It does not seem to be having the expected effect. It looks like it’s generating more panic rather than a pause for reflection and objective assessment.

"Chinese policymakers are stuck between a rock and a hard place and have no easy solutions. The yuan has risen against its major global currencies, chiefly because it was pegged against the US dollar, making Chinese exports more expensive.

"Using currency depreciation to stimulate growth is a double-edged sword. A weaker yuan will help boost the country's sagging exports and help economic growth, but it will also increase the risk of capital flight out of China, making investment in the stock market less attractive, and increase the cost of imports.

"The Chinese economy is going through a very delicate transition which requires a lot of difficult adjustments. Therefore these wild swings in the Chinese stock markets are expected and investors have to get used to them. The Chinese stock markets are set for choppy waters and share prices will continue to see-saw as China seeks to recalibrate its economy while keeping economic growth on track.

"Retail investors, which account for a large portion of stock market trade in China, are not in it for the long haul and are prone to panic. It is to be expected that they react to short-term blips about the health of the Chinese economy. A weaker yuan also makes it unattractive for them to own shares. I think we are going to see more of these stampede type sell-offs driven by a herd mentality in the months to come.

"The volatility in the Chinese stock markets may have some short-term impact on global stock markets, but in the medium and long-term the impact is going to be felt mainly in China.

"I expect the Chinese government to intervene strongly and publicly to prop up share prices. This will undermine its pledge to let market mechanisms have more influence, but perhaps more importantly, it needs to focus on the management of economic reforms to rebalance its economy. One needs to keep in mind that the stock market fluctuations harm the reputation of the Chinese economy but they are not a true reflection of the Chinese economy."