New | China says impact of crackdown on margin financing should be limited
The China Securities Regulatory Commission (CSRC) reassured investors the ongoing crackdown on grey-market margin financing would not weigh on share prices significantly after another sell-off on Monday sent China stocks slumping the most in three weeks.
Only 6.33 per cent of the accounts "cleaned up" by the securities regulator in its months-long margin lending curb were liquidated, while more than three-fourths of them were only urged to change their means of share trading, CSRC spokesman Deng Ge said in the securities watchdog’s official microblog.
The late-night announcement came after the benchmark Shanghai Composite plunged as much as 4.7 per cent on Monday in wake of weak economic numbers that pointed to a sharper slowdown.
Meanwhile, concerns have been expressed in recent Mainland China media reports that Beijing’s steep clampdown on margin loans, which allowed investors to place leveraged bets on stocks, further dried liquidity from the shaky market as more investors chose to sit on the sidelines.
“So far, most of the owners of those trading accounts have followed our instructions and cleaned up the accounts by themselves. With the current pace and approach, [the crackdown] will not put heavy downward pressure to the markets,” Deng said.
As of September 11, the securities regulator has cleared up 3,255 trading accounts, which represented 60.85 per cent of the total allegedly engaged in illegal margin financing activities, Deng said.
Over the last two months, CSRC has urged brokerages not to open their trading systems to so-called “fund-matching” companies that enable investors to borrow margin loans to bet on stocks outside the regulatory framework, and launched an investigation into identity fraud, a common practice executed by margin borrowers.
Three major Chinese technology firms that operate stock trading platforms, including Hundun Technologies backed by Alibaba’s Jack Ma, were fined millions of yuan in late August for allegedly providing the breeding ground for “fund-matching” businesses.
Margin financing, which fuelled China’s year-long stock market bull-run, was believed by many to have pumped in large amounts of liquidity into the markets.
Deng also said the risks from the country’s stock-backed loans, which CICC analysts estimated to account for 2.7 trillion yuan of market capitalisation, were largely controllable.
“The total of the loans amounted to 600 billion yuan. Although positions in stocks used as collaterals by some individuals may be closed due to tumbling share prices, the size to be involved will not be huge enough to have a very substantial impact on the markets,” he said.
