Caixin
Jun 05, 2021 02:55 AM
FINANCE

Chinese Investors Borrow the Most in 6 Years as Market Surges

The CSI 300 Index has gained 4.37% in the past month, compared with a 1.4% rise in the S&P 500 Index.
The CSI 300 Index has gained 4.37% in the past month, compared with a 1.4% rise in the S&P 500 Index.

Chinese investors are borrowing money to buy stocks at a fast pace these days, helping to fuel a nearly 5% rally in the A-share market in the past month. But there’s a significant amount of betting that some stocks will fall.

As of June 1, the outstanding balance of margin financing and securities lending on the Shanghai and Shenzhen stock exchanges rose to 1.73 trillion yuan ($271 billion), the highest level since July 2015.

The CSI 300 Index has gained 4.37% in the past month, compared with a 1.4% rise in the S&P 500 Index. Trading has surged, with daily turnover exceeding 1 trillion yuan for multiple days.

China’s individual investors account for the lion’s share of local stock trading, unlike most other major markets. In May, 1.41 million more individual investors opened new stock trading accounts. That increased the total of retail investors to 187 million, up 13% from the same period last year, according to statistics compiled by the China Securities Depository and Clearing Corp.

In margin trading, investors either borrow money from brokers to buy stocks or borrow stocks directly from brokers to bet against. In the 2015 bull market, when the margin trading balance reached a record 2.27 trillion yuan, no more than 10 billion yuan was borrowed in stock, or less than 1% of total margin trading. In contrast, investors borrowed more shares this time, indicating more of them are bearish on the market. As of Thursday, the outstanding balance of borrowed shares reached 152 billion yuan, or nearly 9% of total margin trading.

The biggest limitations on stock lending are shortages of available stocks and the high cost, a senior industry participant said. When an investor borrows shares, the broker can either spend its own money to buy shares on the market and then lend them to the investor, or it can borrow shares from mutual funds or shareholders of listed companies, which requires strong networks and financial strength, a senior broker told Caixin.

As more than 90% of the clients that borrow stocks are institutions and ultra-high net worth individuals, brokerages usually count on these clients for future growth, the senior broker said. As more investors borrow stocks, this sector is expected to increase to 500 billion yuan in the next three years, the broker estimated.

The top five stocks sold on borrowed shares Thursday were Shanghai-based brokerage Shenwan Hongyuan (000166.SZ), pump manufacturer Zhejiang Leo Group Co. Ltd. (002131.SZ), steel producers Inner Mongolia BaoTou Steel Union Co. Ltd. (600010.SH) and Chongqing Iron & Steel Co. Ltd. (601005.SH), and pig farm Muyuan Foods. Co. Ltd. (002714.SZ).

The top five stocks net bought on borrowed money Thursday were feedstuff producer Tongwei Co. Ltd. (600438.SH), solar power plant operator Sungrow Power Supply Co. Ltd. (300274.SZ), Do-Fluoride Chemicals Co. Ltd. (002407.SZ), vaccine developer Shenzhen Kangtai Biological Products Co. Ltd. (300601.SZ) and brokerage China Industrial Securities Co. Ltd. (601377.SH).

The overall valuation of the A-share market is still within a reasonable range, and there are both overvalued and undervalued stocks, said Ma Wenyu, a strategic analyst at Shanxi Securities.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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