China’s margin trades surge to record as stock rally extends

[BEIJING] Chinese investors are borrowing a record amount of cash to buy local stocks, further fuelling a liquidity-driven rally that shows few signs of stalling.

The outstanding amount of margin trades in China’s onshore equities market climbed to 2.28 trillion yuan (S$415 billion) on Monday (Sep 1), surpassing the previous record of 2.27 trillion yuan in 2015. Traders added such leveraged positions for all but three days in August.

The world’s second-biggest stock market has embarked on a surprise rally in recent months, partly reflecting optimism that China’s breakthroughs in artificial intelligence and efforts to cut overcapacity will revive growth. In the absence of potent fiscal or monetary stimulus, whether Chinese households will use some of their US$23 trillion cash pile to invest is seen as key to the next leg of the bull run.

“Margin financing and new-account openings are rising but not at extremes, indicating the market is not in a bubble,” said Jasmine Duan, senior investment strategist at RBC Wealth Management Asia. “Liquidity tailwinds can persist in the near term, therefore, A-shares should still have some room to run.”

The onshore CSI 300 Index gained 10 per cent last month, its best performance since last September when a policy blitz triggered a short-lived rally. The jump also made the benchmark one of the world’s top performers last month.

Ping An Insurance (Group), Kweichow Moutai and Cambricon Technologies were among the most bought stocks using leveraged funds in August, Bloomberg-compiled data show.

Despite the latest expansion of margin trades, the size of China’s stock market has also nearly doubled in the past decade. The amount of leveraged purchases as a proportion of total market capitalisation was 2.2 per cent as at Monday, slightly above the 10-year average but far below 2015’s peak of 4.6 per cent. BLOOMBERG