Margin buying of Chinese stocks sets record at US$320 billion

Mainland stock traders boosted their leveraged bets to an all-time high, adding fuel to a liquidity-driven rally that catapulted a key benchmark to its highest point in a decade last month.

The outstanding value of the shares bought with borrowed money rose to 2.28 trillion yuan (US$319.2 billion) on the mainland’s exchanges on Monday, according to data from China Securities Finance and Bloomberg. That surpassed the previous high of 2.27 trillion yuan set on June 18, just before a quick boom-to-bust cycle.

The record-breaking margin trade indicates a significant increase in risk appetite, with investors taking on more leverage to boost stock holdings after yields on fixed-income products fell to record lows. Hopes that Beijing will be able to reverse years of deflation also buoyed sentiment after officials moved to cut excessive capacity in some green-energy sectors and started construction of a massive hydropower station in Tibet.

“Active margin trading is an important hallmark of an improvement in market sentiment,” said Mou Yiling, an analyst at Sinolink Securities. “The activity of leveraged capital has raised recognition of the liquidity-driven rally among investors.”

Leveraged quantitative hedge funds and retail traders were the main buyers behind the rally, UBS Group said on Monday. Electronics firms, non-banking financial companies and biotech plays were the favourite stocks of leveraged investors over the past two months, according to Great Wall Securities.

In a sign of the leveraged buying, gauges of small-capitalisation stocks on the technology start-up boards in Shanghai and Shenzhen hit levels not seen in three years last week. Cambricon Technologies, an artificial-intelligence chipmaker trading on Shanghai exchange’s tech board, more than doubled in a month, prompting the company to warn of investment risks from surging stock prices.

South China Morning Post