China’s securities regulator said Monday margin trading at brokerages was “controllable,” seeking to stem a stock-market rout amid concern traders had borrowed excessive amounts of money to buy shares.
Margin calls on Monday morning on the off-market HOMS pooling system were only about 2.2 billion yuan ($354 million), a “fraction” of total transaction value, the China Securities Regulatory Commission said in a statement on its official microblog. Deposits in margin accounts were “nowhere near” dangerous levels, the regulator said.
The Shanghai Composite Index pared losses on Monday afternoon after the CSRC’s statement before resuming a drop that sent the benchmark index tumbling 22 percent from this year’s high. The gauge had surged more than 150 percent in the 12 months prior to its June 12 peak as traders borrowed money to buy stocks and investors speculated interest-rate cuts would revive the weakest economic expansion in more than two decades.
“The market tends to undershoot or overshoot due to this margin financing,” Paul Chan, the Hong Kong-based chief investment officer for Asia ex-Japan, at Invesco Ltd., said by phone on Monday. “Nobody knows when the market will bottom as the unwinding of margin financing makes it very difficult to forecast what the fair valuation is.”
Margin debt outstanding on the Shanghai Stock Exchange dropped for a fifth day on Friday, sliding 2.5 percent to 1.39 trillion yuan for the biggest loss in five months and the longest stretch of losses since June 2014.
— With assistance by Jing Jin, and Gregory Turk