Amidst signs of renewed market frothiness, partially fuelled by a renewed surge in margin debt, China has taken steps to reduce the degree of leverage used in the nation’s stock market.
On Friday evening the Shanghai and Shenzhen exchanges announced they would cut the amount that individual investors could borrow in order to purchase stocks.
From Monday, November 23, margin requirements for investors will increase to 100%, up from 50% seen prior to the announcement. The decision means an investor with 1 million yuan in their stock account is limited to borrowing another 1 million yuan to purchase shares, down from the 2 million yuan level previously available.
Margin financing, which shrank by more than half during the rout, has risen for six straight weeks, coinciding with a renewed surge in Chinese stocks. The benchmark Shanghai Composite index has rallied over 25% since late August, following a near 45% decline from June 12 which was exacerbated by high levels of leverage used by many investors.
In a post on its site Weibo account on Friday, the Shanghai exchange noted that margin debt and financing had risen “rapidly” in recent weeks. The exchange suggested that the move will help reduce leverage and ensure “healthy development of the market”.
According to Bloomberg, US-listed Chinese companies and exchange-traded funds tracking A shares fell after the announcement.
Chinese markets will resume trade at 12.30pm AEDT.
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