Suspending Disbelief: China Stock Trading Frequently Frozen

Trading suspensions happen in developed markets but are a rare event. Indeed, not one of the largest 300 U.S. stocks missed a full day of trading in the last two decades. But in China, suspension is an all-too-common occurrence, with over one-fifth of all large-cap stocks experiencing trading suspensions in some months.

Over the last 20 years, we find in times of major structural change (the Split Share Structure Reform initiated in 2005) or during periods of severe market stress (the bubble in A shares that burst in June 2015), top-down interventions aimed at promoting stability have occurred with stunning frequency. But “voluntary suspensions” by companies are in fact common too, as firms electively halt their shares to pre-empt the effect of bad news on a stock’s performance.

For quant investors, a failure to account for this strange feature of China’s market when developing and simulating trading strategies could be disastrous.

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Issued by Rayliant Investment Research d/b/a Rayliant Asset Management (“Rayliant”). Unless stated otherwise, all names, trademarks and logos used in this material are the intellectual property of Rayliant.

This document is for information purposes only. It is not a recommendation to buy or sell any financial instrument and should not be construed as an investment advice. Any securities, sectors or countries mentioned herein are for illustration purposes only. Investments involves risk. The value of your investments may fall as well as rise and you may not get back your initial investment. Performance data quoted represents past performance and is not indicative of future results. While reasonable care has been taken to ensure the accuracy of the information, Rayliant does not give any warranty or representation, expressed or implied, and expressly disclaims liability for any errors and omissions. Information and opinions may be subject to change without notice. Rayliant accepts no liability for any loss, indirect or consequential damages, arising from the use of or reliance on this document.

Hypothetical, back-tested performance results have many inherent limitations. Unlike the results shown in an actual performance record, hypothetical results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over- compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical results in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any investment manager.