Chinese stocks tumble most in four months on margin loan curbs
By Bloomberg
Chinese stocks plunged the most in four months in record turnover as brokerages tightened lending restrictions and the central bank drained cash from the financial system.
The Shanghai Composite Index tumbled 6.5 percent to 4,620.27 at the close, dragged down by financial and commodity companies. Citic Securities Co. plunged 9.4 percent after several smaller rivals increased their margin requirement, the collateral put up by an investor when borrowing. Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. slid at least 5 percent after the sovereign investment firm trimmed its stake in the two lenders.
Record growth in margin debt helped fuel a 127 percent gain in the Shanghai gauge over the past year, the most among global indexes tracked by Bloomberg. Margin lending by brokerages exceeded 2 trillion yuan ($322 billion) as of May 27, five times the level of a year earlier, stock exchange data showed.
“The whole nature of China market, it’s all on leverage, all on margin trading, so margin calls will further push the market as retail investors are forced” to put up more collateral, said Michael-Douglas Lee, a Hong Kong-based trader at SG Securities Ltd.
The Shanghai index climbed as high as 4,986.50 on Thursday before faltering in its bid to reach the 5,000 level for the first time since 2008.
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