New | China stocks: expect less volatility in 2016 amid slower growth in margin financing
Mainland authorities likely to keep tighter caps on the ability of investors to use borrowed money to buy securities.
Did China’s tightening of margin financing help trigger the rout in mainland Chinese stocks earlier this year?
The jury is still out on the actual causes of the market turmoil that started in June, but a clampdown on official and unofficial channels of credit coincided with the U-turn in China shares.
Throughout the first half of the year, mainland authorities, concerned about irrational exuberance in China stocks, unveiled a successive tightening of rules that enable investors to use borrowed money to buy securities.
The process began in early January, when the China Securities Regulatory Commission, increased the minimum threshold for margin trading accounts to 500,000 yuan (HK$597,000) from zero.
In spite of these efforts, China’s margin-financing balance ballooned to 2.27 trillion yuan as of June 16, more that double what it was at the start of the year. Around the same time, the Shanghai Composite reached its highest level in seven years.
It’s not clear what administrative measure tipped the balance, but at some point investors rapidly cut back their leveraged bets, triggering a panic sell-off and leading to a months-long free fall in mainland markets.