Here’s Why China Shouldn't Extend Its Stock-Selling Ban

By GKFX Team  |  08/01/2016 11:38

China's stock-sale ban should be lifted sooner rather than later, according to one expert.

"[Problems arise] when you have these measures put in place and you don't take them off when you say you're going to take them off," said James Hughes, chief market strategist at GKFX, based in London."

The ban, unveiled last summer when China stocks plunged, applied to its biggest investors and was set to expire on Friday. Reports say China will extend the ban, given the deep selloff seen in its benchmark Shanghai Composite Index Monday, which triggered a global selloff in equities.

"You can see why the ban [was in place], but it needs to come off sooner rather than later because the longer you leave it, the bigger the problem is," he said. "The confidence behind China is being damaged even further."
 
Officials fear further market swings to the downside once China's largest investors are allowed to sell their holdings.
Meanwhile, China also devalued its yuan currency further on Wednesday, pushing it to a five-year low against the dollar.

"It's another step to make sure the Chinese economy is protected in every way possible," he said. "If you put too much protection in place, when you finally remove these things, you cause big issues in the markets."
 
The Shanghai Composite index rose 2.25% Wednesday.

Aside from China, global investors are on edge over North Korea's hydrogen bomb test. This isn't the first geopolitical development to rattle investors, as tensions rose between Saudi Arabia and Iran earlier this week.

"The markets are already causing enough problems on their own -- we don't need [another] geopolitical problem," Hughes said. "This is going to affect oil prices -- we've already seen brent crude drop below $35 a barrel on Wednesday," representing an 11-year low.