China pushes slow bull run with tightened margin financing rules to fight overheating



China’s move to raise margin requirements for leveraged stock trading signalled regulators’ push to steer clear of boom-and-bust cycles, while strengthening the stock market’s role in funding the country’s tech self-sufficiency efforts, according to analysts.

“The signal from regulators was crystal-clear: guide the market towards a stable transition to a slow bull run,” said Wang Jun, a strategist at BOC International in Shanghai.

“Investors should reduce their leverage levels to guard against the risk of volatility from sentiment swings. The focus of the market will gradually return to fundamentals.”

The Shanghai, Shenzhen and Beijing stock exchanges said in separate statements on Wednesday that the margin requirements for leveraged stock buying would increase to 100 per cent from 80 per cent, effective on Monday, with the changes applied only to new contracts.

The tightened margin trading rules had an immediate impact by cooling market sentiment.

On Thursday, the Shanghai Composite Index slid 0.3 per cent, extending a decline of the same percentage a day earlier. Smaller technology stocks – the sector with most exposure to leveraged buying – fared worse. The index of the biggest 50 companies on Shanghai’s Nasdaq-style Star Market fell 0.5 per cent.

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