China’s Stock Plunge Leaves Market More Leveraged Than Ever

Leveraged bets on Chinese stocks have increased to a record versus the size of the market as prices fall faster than margin traders cut positions.

The outstanding balance of margin loans on the Shanghai and Shenzhen bourses climbed to 4.4 percent of overall market capitalization on July 2 from 3.6 percent on June 12, before the rout began, as the attached chart shows. The data doesn’t include unregulated borrowing, which Bocom International Holdings Co. estimates at around $322 billion. That would increase the debt to market cap ratio to more than 9 percent.