Leveraged buying of Chinese stocks rises as some see return of margin traders boding well for equity markets
- The combined outstanding value of margin trading on the Shanghai and Shenzhen exchanges rose to a level not seen since April 2022
- The value of short selling shrank to the lowest level since June last year, after regulators raised the margin ratio for short sellers to 80 per cent from 50 per cent
Leveraged traders have raised their bets on Chinese stocks in one of Asia’s worst-performing major markets this year, a reflection of the hopes among some investors that there could be a rebound forthcoming.
The combined outstanding value of margin trading on the Shanghai and Shenzhen exchanges, or purchases of stocks with borrowed money, stood at 1.55 trillion yuan (US$211.9 billion) on Wednesday, a level not seen since April 2022, according to data by China Securities Finance. It has been on a tear since early October, and has been recovering from the two-year low struck in January this year. Meanwhile, the value of short-selling shrank to 80.2 billion yuan for a third consecutive day on Thursday, near the lowest since June last year, the data showed.
“Margin trading is a leading indicator of the market,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “The rising interest in margin trading has something to do with the government’s efforts to rescue the market and curb short-selling. The market will probably have some upside room going forward, as we are at a relatively low level and stock prices are cheap.”
“Though foreign selling is continuing, state buying shows the regulator’s determination to boost the capital market and margin trading is also on the recovery,” said Song Yiwei, an analyst at Bohai Securities in Tianjin. “With new-share sales also slowing down, all these changes will have a positive impact on the liquidity of stocks.”
