The next shoe to drop on the A-share market roller coaster could be roughly 300 billion yuan worth of leveraged positions that could rapidly unwind, according to calculations by HSBC. “Margin financing was the primary market driver on the way up, and it will be a key driver on the way down as well,” HSBC equity strategists led by Steven Sun said in a research note on Monday. Sun said that as A shares decline, most of those positions will be forced to close, triggering a further drag on the Shanghai Composite Index. He expects the positions to be closed will total 300 billion yuan. Margin financing was the primary market driver on the way up, and it will be a key driver on the way down HSBC equity strategists And that does not include over-the-counter financing, which the mainland media has estimated at more than a trillion yuan. Half of those positions might have been liquidated last week following a correction which has dragged Chinese markets into bear territory since the peak of June 12. Money managers will be paying attention to the amount mainland Chinese have borrowed through margin financing to buy A shares. If they’ve borrowed too much, monetary stimulus such as the weekend cuts in interest rates and bank reserve ratios announced by Beijing will not stop investors from having to further liquidate their positions. The margin financing balance on the A-share market hit a peak of 2.27 trillion yuan on June 18, according to HSBC. Those bets were, on average, placed 6 per cent higher than the prevailing market in May and 14 per cent higher in June. A semi-annual audit of listed firms, including banks and brokerage houses, meant companies who trade the markets had had to dump stocks to return cash to their balance sheets, compounding the overall sell-off, said Anne Stevenson-Yang, founder of J Capital Research. Outstanding margin loans totalled 2.2 trillion yuan last Wednesday as margin calls forced investors to cut 61.5 billion yuan in leverage in the first half of the week as shares fell, data showed. On Monday, the Shanghai Composite, Shenzhen Composite and ChiNext Price indices were in bear market territory, with Shanghai down 21.5 per cent since June 12, Shenzhen down 25.1 per cent in the same time and ChiNext down 32.4 per cent since June 3. After Tuesday’s bounce back, Shanghai was down 17.2 per cent from its mid-June peak, Shenzhen down 21.5 per cent and ChiNext down 28.2 per cent. Despite a fortnight of heavy selling, both Shanghai and Shenzhen still posted healthy gains for the first half of the year, with Shanghai up 35.1 per cent and Shenzhen up 76.2 per cent. ChiNext was up 95.7 per cent for the first half of the year. HSBC said it was still premature to call an end to the policy-driven A-share rally, given the importance of the stock market in helping the mainland’s state-owned enterprises and key industries obtain much-needed financing. “We think investors will remain cautious, having seen three negative daily movements over 6 per cent [Shanghai Composite Index] in the past month,” Sun said.