July 06, 2015

"Unofficial margin accounts have 'significantly' higher leverage than those opened through brokerages and can invest in any stock, not just those mandated by the regulator."

Bloomberg 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. by Richard Frost

'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.

'Higher leverage may undermine government measures to stem the steepest three-week rout in the nation’s equities in a quarter-century. Margin traders reduced positions for nine days through Thursday, the longest stretch of declines on record, even as the central bank cut interest rates and the securities regulator eased margin-trading rules.

'The outstanding balance of margin loans on the Shanghai and Shenzhen bourses has fallen by $46.1 billion to $319 billion through Thursday from the peak on June 18, according to the latest exchange data. The 13 percent drop compares with a 31 percent, $3.2 trillion plunge in the value of Chinese equities through Friday, as the attached chart shows.'

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