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.”
The CSI 300 Index rose 0.8 per cent to 3,584.14 on Friday after sliding to a four-year low last month amid a record streak of foreign outflows. The benchmark has dropped 7.4 per cent this year, outperforming only the Hang Seng Index and Thailand’s SET 50 Index in the Asia-Pacific region.
China E Fund Management plans US$27.3 million ETF buy-back
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The outstanding values of leveraged stock buying on China’s onshore markets have risen by 106.2 billion yuan, or 7.4 per cent, from the end of 2022, while the values of short bets have decreased by 15.7 billion yuan, or 16 per cent, according to China Securities Finance.
China approved margin trading and short selling in 2012 as part of the reform of the capital market. Leveraged stock purchases evolved into a key driver for the quick boom-to-bust cycle in 2015 that erased US$5 trillion in market value, with the CSRC cracking down on illegal margin trading and clarifying that licensed brokerages were the only approved platform for the business.
The current value of leveraged buying is down 32 per cent from the peak of 2.27 trillion recorded on June 18, 2015.