China Margin Lending Hits Record High Since Piloted in 2010

[randallchsu]

I think this gives a little bit explanation to the recent run ups in Chinese publicly traded stocks.

 

"Margin trading had been piloted in (China) in 2010 and then fully implemented in October 2011. Brokerages, sensing more revenue opportunities, were more than happy to provide margin-trading accounts. Investors, who had largely never experienced margin before, lapped it up as margin lending grew."

 

"Research by Macquarie Securities Group shows China’s margin-debt ratio at 8.2% of the free float. That easily exceeds the peak of 6% reached in the late 1990s in Taiwan, the second-highest level globally in recent years."

 

"Trading funded by margin loans accounts for 25% of daily volume on the ChiNext, the market in Shenzhen where Chinese startups trade, according to estimates from UBS AG."

 

http://si.wsj.net/public/resources/images/AM-BI665_CMARGI_16U_20150422053020.jpg

 

Link - http://www.wsj.com/articles/debt-builds-in-china-stock-rally-1429785899

Link - http://knowledge.insead.edu/blog/insead-blog/margin-call-on-overleveraged-china-3808

[KinAlberta]

Wow! Thanks for posting. 

 

Well, leveraged or not, in a significant downturn there will be a lot of forced selling so this only seems designed to set up a good chunk of the population for calamity and the handing over much of their wealth to a few survivors. Bringing back the old dynasties maybe. 

 

Also isn't NYSE margin at record levels?

[TwoCitiesCapital]

Wow! Thanks for posting. 

 

Well, leveraged or not, in a significant downturn there will be a lot of forced selling so this only seems designed to set up a good chunk of the population for calamity and the handing over much of their wealth to a few survivors. Bringing back the old dynasties maybe. 

 

Also isn't NYSE margin at record levels?

 

It's at record levels in terms of absolute dollar amounts which would generally be expected in a rising market because increased stock prices allow you to increase the debt available to you. I don't know if it's at record highs as a % of free float though - that would probably be a better measure.