It did not take long for the flood of borrowed money to come pouring back into mainland stocks.
After a two-day decline spurred by regulatory efforts on January 16 to curb margin lending by some of the biggest brokerages, the value of shares bought with borrowed cash has rebounded to a record high.
The outstanding balance of margin debt on the Shanghai Stock Exchange rose to a record 771.4 billion yuan (HK$956.1 billion) on Monday, up from about 751 billion yuan on January 20.
The suspension of new margin accounts at three of the nation's biggest brokerages and notice to ban loans to traders with less than 500,000 yuan has done little to dampen leveraged investors. After falling 7.7 per cent on January 19 in the biggest one-day rout since 2008, the Shanghai Composite Index hit a five-year high on Monday.
"Margin debt is still growing rapidly and is probably against the will of the regulators," said Hao Hong, a strategist at Bocom International. "The regulator wants market stability but is also trying to find a way to rein in speculation. It is between a rock and a hard place."
On January 16, the China Securities Regulatory Commission banned Citic Securities, Haitong Securities and Guotai Junan Securities from adding margin finance and securities lending accounts for three months following rule violations. It also said securities firms should not lend to investors with assets of less than 500,000 yuan, prompting the biggest drop in the margin debt balance in Shanghai in 19 months.