China regulators crack down on indirect stock leverage practices
The Chinese-language site Securities Times reported via WeChat that Chinese banks are reviewing loans to ensure that personal loans, including credit card drawdowns, are not used to finance stock purchases. Asia Unhedged observed last week that the $360 billion in margin lending to China’s market represents only about 3% of the market cap of China’s two major equity indices, compared to about 2.2% in the United States. But Chinese investors have used other credit channels to finance equity purchases, prompting a regulatory crackdown. Over time the reduction in stock market leverage will reduce volatility, but recent market fluctuations have reflected forced liquidations at the instance of the regulators.