Officials at the Shenzhen Stock Exchange ordered the temporary trading suspensions of three small companies on the bourse after weeks of extremely volatile trading. Over the past few weeks, the bourse nearly doubled its trading volumes following the implementation of easing measures on its trading restrictions.
Trading of the stocks of Shenzhen Changfang Group, Zhengzhou Sino-Crystal Diamond, and Xinjiang Tianshan Animal Husbandry Bio-engineering on the exchange's ChiNext was temporarily suspended on Wednesday. In a statement, the exchange noted that the stock prices for the three companies had skyrocketed to unsustainable levels over the past few days, leading to its decision to temporarily halt trading.
The exchange had previously suspended trading of Xinjiang Tianshan's stocks earlier in the month. The decision was made after the stock price of the cow-breeding firm surged by nearly 600 percent. The other two companies also experienced similar stock price growths. LED manufacturer Shenzhen Changfang saw its shares hit the 20 percent daily growth limit for seven consecutive days, while Zhengzhou Sino-Crystal Diamond's share prices hit the ceiling for three consecutive days.
The frenzied trading of the particular stocks came right after the exchange extended the ceiling for the daily rise and fall of stock prices from 10 percent to 20 percent. Analysts have stated that this had led to a surge in speculative bets in smaller companies as investors attempt to cash in from the massive price swings.
According to the exchange, the majority of the transactions made on the three stocks were from retail buyers. For Xinjiang Tianshan, around 97 percent of the transactions that led to its rally was from retail investors. The exchange also noted that the stocks were typically held for only a few days before being sold.
In a post published on its website, the Shenzhen bourse reminded investors to always be aware of the risks of investing and to stick with investment best practices. It also warned investors not to speculate on small-cap stocks in order to prevent losses.
Investment analysts have pointed out that the surge in the stock price of the three companies had really made no sense given that all three had posted first-half losses. The fundamental indicators that warrant a stock rally simply weren't present, they added.