Borrowing binge inflates risks from bets in surging Chinese stock markets
Number of Chinese stocks bought with loaned money doubles in six months to 881b yuan
Borrowed cash has fuelled the biggest speculative rally in mainland stock markets in five years, leaving investors exposed to the risk of financial wipeout if bullish sentiment suddenly sours.
The number of stocks bought with loaned money, also known as margin trading, has doubled in six months, and totals 881 billion yuan (HK$1.1 trillion) - equivalent to 18 per cent of the Shanghai and Shenzhen bourses' combined 4.8 trillion yuan market capitalisation, according to official data collated by Bloomberg.
Unofficial estimates suggest stocks bought on credit may account for as much as 40 per cent of the market.
"When you have leverage like this, things are magnified," China economic analyst Anne Stevenson-Yang said.
Encouraged by government dictate and a recent interest rate cut, Shanghai's market is up 35 per cent year to date, giving investors an incentive to re-enter markets after years of meagre returns. Some are clearly playing with gusto.
A jump of 18 per cent since November 11 saw fresh records set for turnover volumes and volatility spikes in Shanghai as investors leveraged up as much as 500 per cent to cash in on the stock frenzy.