Shanghai Margin Trades shrink most in three years prior CNY

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Chinese brokers lessened possessions of stocks obtained with acquired cash by the most in three years as money needs expanded before the week-long Lunar New Year occasions. The outstanding value of margin debt on the Shanghai Stock Exchange fell 3.1 percent on Feb. 13 to 779.2 billion yuan ($124.9 billion), according to data from the bourse. That’s the biggest drop since Jan. 20, 2012, when it slid 4.8 percent.

Some investors in the world’s second-largest economy are raising cash to pay for gifts and food before the holidays, which start on Feb. 18 and will spur the Shanghai exchange to shut through Feb. 24. The benchmark Shanghai Composite Index has jumped 52 during the past year, the best performance among major markets tracked by Bloomberg, as central bank stimulus encouraged traders to boost margin debt to an all-time high earlier this month.

“Some investors have chosen to hold cash instead of stocks when the market is shut for so long,” Wei Wei, an analyst at West China Securities Co., said by phone from Shanghai. “They want to be less exposed to uncertainty during the holidays. The fundamentals of the market haven’t changed.”

The extraordinary estimation of edge exchanging on the Shanghai trade rose to a record 805.1 billion yuan on Feb. 11, with utilized stock buys surging more than 10-fold in the course of recent years. Chinese authorities have taken steps to cool the use of borrowed money. The securities regulator suspended new margin accounts at three of the nation’s biggest brokerages last month and issued a notice to ban loans to traders with less than 500,000 yuan. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a brokerage. The loans are backed by the investors’ equity holdings, meaning that they may be forced to sell when prices fall to repay their loan.

In an edge exchange, investors utilize their own particular cash for simply an allotment of their stock buy, obtaining the rest from a business. The credits are supported by the financial specialists' value possessions, implying that they may be compelled to offer when costs tumble to reimburse their obligation. Investors’ interpretation that regulators are stifling money markets through the suspension isn't exact, CSRC representative Deng Ge said, by proclamation on the commission's site. The controller made a move "to secure speculators' rights and backing the solid development of edge exchanging," Deng said.

Concerns are growing, too, over other debt-fueled investment, including so-called umbrella trusts—products that take cash from wealth-management products and hedge funds and pump the money into equities. The debt that funneled into China’s stocks last year helped make the Shanghai Composite the world’s best performer in 2014. The worry is that the widespread use of debt risks making the market far more unstable. Despite efforts to open the market to foreign fund managers, the market remains mostly made up of individual Chinese investors who could be left with steep losses if their leveraged bets were to turn sour.