Chinese trading halts freeze $1.4 trillion of shares amid rout

Chinese companies have found a guaranteed way to prevent investors from selling their shares: suspend trading.

Almost 200 companies halted trading after the close on Monday, bringing the total number of suspensions to 745, or 26 per cent of listed firms on mainland exchanges, according to data compiled by Bloomberg. Most of the halts are by companies listed in Shenzhen, which is dominated by smaller stocks.

The suspensions have locked up $1.4 trillion worth of equity, or 21 per cent of China's stock market value, and are becoming increasingly popular as shares tumble. The halts mean that the Shanghai Composite Index's 29 per cent plunge from its June 12 peak is understated. "Their main objective is to prevent share prices from slumping further amid a selling stampede," said Chen Jiahe, strategist at Cinda Securities Co.

The rout in Chinese shares has erased at least $3.2 trillion in value, or twice the size of India's entire stock market. The Shenzhen Composite Index has led declines with a 39 per cent plunge since its June 12 peak, as margin traders unwound bullish bets.

In the US, there are 121 halted companies comprising less than 0.2 per cent of market capitalisation. In Hong Kong, 186 firms are suspended, representing 4.7 per cent of the city's equity market cap.

Searainbow Holding Corp halted trading on Friday in Shenzhen after losing 54 per cent in just three weeks. The company, which makes chemical fibers and online games, had surged 150 per cent this year through its high on June 11. Wuhu Shunrong Sanqi Interactive Entertainment Network Technology Co suspended its shares on Monday after a six-day, 34 per cent plunge. The stock is still up 99 per cent this year. The increasing number of halts will deter investors from buying shares on concern any purchases they make will also end in suspensions, said Steve Wang, chief China economist at Reorient Financial Markets in Hong Kong.