The past two weeks have been tough for both retail investors and listed companies as the stock market has kept on falling. A large number of listed companies have responded by suspending trading in their shares, and this is good for both the investors and the companies.

A suspension means that firms can avoid the risk of a more precipitous decline in their share prices. It also brings at least a small measure of stability to the market, providing a limit on the extent of the potential fluctuations, which is good news for retail investors at a time of such uncertainty. By the time the market has calmed down, these firms will be able to reopen for trading without having suffered too heavily.

During the recent slump in the Shanghai Composite Index and Shenzhen Component Index, many stocks have fallen by the 10 percent daily limit, sometimes falling on successive trading days. At times like this a suspension is sensible, as investors are strongly affected by sentiment and fear of considerable losses, so they may rush to sell shares that they should actually hold on to.

According to media reports, more than 51 percent of China's listed companies had suspended or planned to suspend trading of their shares by Wednesday.

Of these companies, a large proportion are listed on the Small and Medium-sized Enterprise Board and the NASDAQ-like ChiNext board for fast-growing start-ups. This is because these companies are more susceptible to fluctuations in the market and their stock prices can fall sharply if sentiment turns bearish.

Furthermore, a lot of investors buy shares in these companies via margin finance. By temporarily freezing trading, these companies can avoid a further drop in their shares, which could be caused if investors who have borrowed money to invest in them via margin finance have to pay back their loans, and are forced to liquidate their stock holdings in order to do so. The two bourses are likely to approve listed companies' applications for a trading suspension, so long as the companies can offer a reasonable explanation.

Of course, some retail investors are put at a disadvantage by the trading suspension. For those investors who are in urgent need of cash, it is impossible for them to liquidate their stocks when trading is suspended.

But the suspension does at least mean that investors do not have the option of panicking and rushing to empty their positions, which could lead to an even worse situation in the market. In fact, the recent series of market falls has brought many overvalued stocks back to a level roughly equal to their intrinsic value.

Even though the market tumbled sharply again on Wednesday, the slump is likely to bottom out by the end of this week. The market looks darkest just before the dawn.

The article was compiled by Global Times reporter Wang Wei based on an interview with Yang Delong, chief strategist with China Southern Fund. bizopinion@globaltimes.com.cn