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Zhang Shidong

China’s stock traders have been unwinding their leveraged positions over the past month, fuelling the worst-ever stock sell-off on one major index of technology shares and undermining Beijing’s efforts to put a floor on the equity market.
The outstanding value of the stock purchases financed by margin trading stood at 2.59 trillion yuan (US$383.4 billion) on Friday, a decrease of 14 per cent from the record high of 3.01 trillion yuan on June 25, according to Chinese financial data provider Wind.
The unravelling of the trade was concentrated in the stocks trading on the Shanghai and Shenzhen exchanges under their respective tech boards.
The reduced exposure coincided with the unravelling of global artificial intelligence fever, as investors questioned the need for massive capital spending on data centres and cloud-service infrastructure amid elevated stock valuations and expectations of monetary tightening by the Federal Reserve.
The deleveraging partly caused a 26 per cent slump in the tech-centric Star Market 50 Index in July, the worst monthly performance since its inception.
“Investors’ exiting their leveraged positions largely explains the big decline in the market, particularly technology and AI stocks, though little has changed in the fundamentals,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai. “AI stock swings overseas both provoked and accelerated the deleveraging here.”
In investing, the greatest risk is often not being wrong about the opportunity. It’s taking so much risk that you don’t survive long enough to benefit from it
Charu Chanana, Saxo
Meanwhile, the reining in of leveraged bets by investors could add uncertainty and complicate Beijing’s efforts to stop the decline in China’s onshore markets.
The country’s securities regulator has repeatedly pledged to soothe sentiment and talk up the market, while two state-backed entities bought stocks for about 60 billion yuan.
Beijing Jingyi Automation Equipment, a semiconductor equipment maker trading on the Star Market in Shanghai, was the stock most exposed to the reduction in leveraged positions in July, seeing a 71 per cent decline in the outstanding value of margin trading, according to Wind. Shenzhen-listed Zhuhai Raysharp Technology and YD Electronic Technology were also among the stocks hit hardest by deleveraging.
Unlike in South Korea – where a scramble by retail investors for deleveraging spurred unprecedented stock price swings – the risk from China’s leverage appears more manageable.
The current outstanding value of margin trading as a percentage of the capitalisation of free-float stocks, or those available for public trading, was at 2.7 per cent, well below the 4.7 per cent seen in the 2015 stock rout, according to Wind data.
“AI remains one of the most important long-term investment opportunities of this decade. But even the strongest themes can become crowded, expensive and vulnerable to corrections,” said Charu Chanana, chief investment strategist at Danish investment bank Saxo.
“In investing, the greatest risk is often not being wrong about the opportunity. It’s taking so much risk that you don’t survive long enough to benefit from it.”


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Tech stocks plummeted in July as traders unwound leveraged positions, sparking a drop in margin financing and raising concerns in Beijing


Tech stocks plummeted in July as traders unwound leveraged positions, sparking a drop in margin financing and raising concerns in Beijing.


China stock traders cut leveraged positions by 14% in July amid tech sell-off

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Tech stocks plummeted in July as traders unwound leveraged positions, sparking a drop in margin financing and raising concerns in Beijing

Tech stocks plummeted in July as traders unwound leveraged positions, sparking a drop in margin financing and raising concerns in Beijing