Record $ 322 billion in Chinese loans for stock betting feeding volatility and asking for heart

Chinese investors borrowed a $ 322 billion record to buy shares this year, but the sharp correction of this week and increasing regulation supervision for the cold hot market now makes them nervous about leverage betting.

While the risk for a broader Chinese financial system has increased for months due to deflation in the economy and a persistent property debt crisis, the action of new stock investors can add more pressure.

Extraordinary margin financing in China, the size of the sentiment and leverage level key, reached a record of 2.3 trillion Yuan ($ 321.55 billion) this week. And some speculators transfer consumer loans to stock trading.

They helped Shanghai’s shares reach the highest 10 years last week in the liquidity reliever driven by the economy despite the weak economy and boiling trade and geopolitical tension.

But the CSI300 Blue-China China index declined 2% on Thursday after Bloomberg News reported, quoting the source, that the regulator considers the steps to cool the market.

Cassiel Jiang, who borrowed 200,000 yuan to buy shares for fast profits, said he was somewhat surprised by increasing volatility this week, when many stocks rose or drop 3% to 5%.

“If you haven’t made a profit at the peak, you wonder if you have to cut the loss after you start bleeding,” said 35-year-old programmer in Beijing. Jiang says he plans to reduce the influence so that he “can sleep well at night”.

While a very leverage market bet is not new in China, an increase in concerns from retail investors and regulators underlines the risk of bubbles formed in the second largest economy in the world.

In a sign of caution of regulations, China’s top securities regulator Wu Qing promised last week to “consolidate good market trends” by actively promoting investment “long-term, rational,” value “.

Chinese Tech Bellwether Cambricon, who is in the Jiang portfolio, plummeted 15% on Thursday after double the market value to 668 billion Yuan in August.

The maker of artificial intelligence chips, seen as the answer to China for Nvidia, is one of the most popular targets for speculators, which borrowed more than 10 billion yuan to bet on stocks that surge in profits that are too large, according to exchange data.

Steven Leung, executive director of institutional sales at UOB Kay Hian in Hong Kong, said that the record number of margin financing has made the market more vulnerable.

“If there are sizes that try to cool the market, these people, especially those who use margin financing, must go out first,” he said.

Consumer loan

Even as the Chinese government, which this month began to offer interest subsidies for consumer loans, has urged banks to improve risk management on the loan, some stock investors feel that it is a profitable source of loan.

Retail Investor James Liu taps consumer loans for stock purchases. Interest rates are around 3% for consumer loans, compared to 4% or 5% for broker margin loans, “so of course I first will borrow from the bank,” he said.

Although the bank prohibits consumer loans from flowing to stocks, Liu, a technology worker in Southwest Sichuan Province, said he moved money between various accounts and opportunities to be captured very thin.

Meanwhile, more and more banks, including China Minsheng Bank, Hekou Rural Commercial Bank and Wenshan City Commercial Bank, recently warned the use of credit card loans illegally for investment.

Because consumers remain reluctant to spend in a struggle economy, “fewer consumers who are feasible for credit remains as active borrowers, who lead to higher risks of assets for lenders”, Moody’s ranking agents write.

In a sign that the broker also heed the risk, Sinolink Securities increases margin requirements at the end of August.

To be sure, margin financing currently only contributes 2.3% of the capitalization of Chinese freat-float shares, compared to the peak of 4.7% per decade ago, when the market is much smaller.

There are also a number of signs of the level of retail euphoria and illegal shadow loans that help trigger Bubbles of Chinese Epic Stocks in 2015.

“The government has made it very clear that they support the equity market,” said Eugene Hsiao, Head of Chinese Equity Strategy at Macquarie Capital.

“That said, policy makers were aware of the boom-bust cycles similar to margin trade bubbles in 2014-2015,” he said, hoping the government to “control excessive speculative flow”. Source: Reuters