Balance of margin trade rose for a 4th trading day with RMB 45 bln

A shares continue to strongly rebound after the National Day vacation. Investors also changed their hesitation to add leverage slightly.

The data of Shanghai and Shenzhen stock exchanges shows that the margin trade balance of the two bourses recorded 952,398 million yuan up to Oct. 13, up by 4.42 billion yuan compared with previous trading day, and also nearly by 45.7 billion yuan compared with 906,709 million yuan on Sep. 30. It has risen for a fourth trading day since the end of vacation, with the increasing sentiment to long margin trading.

But some market players are very cautious, just like a burnt child dreads the fire. They believed such constant rebound is not a good event, as A shares experienced intensive leverage deduction on and off the market not long ago. Strong comeback of the investors may trigger a bubble risk to some extent.

Balance of margin trade rose for a fourth trading day

The data shows that balance of margin trading and short selling fluctuates at low positions after it dropped below 1 trillion yuan in September for the first time. There is no obvious rebound, with a new low in this year of 906,709 million yuan on Sep. 30, mainly as investors are not enthusiastic to long margin trading.

However, it has risen for a fourth trading day since the end of vacation. The Wind data shows that the balances of margin trade on Oct. 8, 9, 12 and 13 were 922,406 million yuan, 923,764 million yuan, 947,978 million yuan and 952,398 million yuan respectively, up by 15,697 million yuan, 1,358 million yuan, 24,214 million yuan and 4,420 million yuan compared with their previous trading days. Growth rate of the balance on Oct. 12 has been the largest for a single trading day since June 2.

The journalist found after comparison that pessimistic mood on margin trading is obviously eased after the vacation. A large scale of repayments on margin trading before the vacation also has been released, with more stocks brought through margin trading. In terms of latest data on Oct. 13, turnover by margin trading in Shanghai and Shenzhen stock exchanges recorded 83,592 million yuan, with 816 individual stocks involved in the margin trading.

Specifically, the sectors of non-bank finance, computer, mechanical equipment and media have attracted more investment. It is noteworthy that some mid and small-cap growth stocks are again favored by investors. Some analysts believe that investors mainly focus on brokerage stocks whose prices were over deceased previously and growth stocks with stable performance in the non-bank financial sector.

Since Oct. 8, individual stocks, including KPC Pharmaceuticals Inc. (600422.SH), Guangdong Alpha Animation and Culture Co., Ltd. (002292.SZ), SUFA Technology Industry Co., Ltd., CNNC. (000777.SZ), East Money Information Co., Ltd. (300059.SZ), Qingdao TGOOD Electric Co., Ltd. (300001.SZ), are top winners in terms of their margin trading balance growth. Particularly, KPC Pharmaceuticals has seen its financing balance increase 138.32 percent to 821 million yuan, accounting for nearly 7 percent of the company’s tradable shares

High leverage comes back?

After four days of growth, the margin trading balance in Shanghai and Shenzhen bourses has returned to the highest level since early September. Some people are concerned that the high leverage, which has been reduced with hard efforts, may sweep the market again, especially as the market is full of uncertainties now.

A person in charge of the margin trading businesses in a brokerage based in Shanghai tells our reporters that although investors have shown growing bullish moods, yet there are not many changes in a whole. Most clients tend to be more cautious after the previous crash, and there are still few who substantially buy stocks. “The more than 40 billion yuan growth in four days is not a large amount. So we don’t worry about high leverage. Currently, the market has no bases for investors to buy substantially buy stocks.”

Yang Delong, chief strategy analyst at China Southern Asset Management Co., Ltd., notes that the current rebound was only an oversold bounce. “Some stocks had dropped 50 percent, or even 60 to 70 percent. So they may rebound rapidly.”

Some senior managers of private funds tell that the market recovery is driven by the oversold bounce, as well as the leverage risk, policy benefit and the overseas market. “The rise is seen in the theme stocks, for instance, stocks related with charging station topic. It is unsure how long the surge will continue. The institutions are still quite cautious and haven’t dealt with some funds with high net value previously.”

Does the four-day increase mean the downward trend in balance of margin trading and securities lending ends? Qian Qimin from Shenwan Hongyuan Group Co., Ltd. (000166.SZ) believes that the continuous rebound in the financing balance is mainly contributed by investors pursuing short-term rebound. But it doesn’t mean the end of the declining trend or the end of bottoming. If the market falls again but the balance of margin trade doesn’t drop, the market will get stabilized.

As for the fund flow in the A-share market, the capital was flowing out from the market in these two days. The latest data from Wind Information Co., Ltd. shows that the two bourses in Shanghai and Shenzhen saw an increasing net outflow of 30.191 billion yuan on Oct. 14. The number of shares with net inflow continued to decrease to 602 and that with net outflow rose to 1,750.

The above person engaged in margin trading and securities lending states that the surge is mainly boosted by the market as a response to the market recovery. For the current A-share market, an analyst points out that investors should be cautiously optimistic about the growing good market condition, which might pull back in a short term. He holds the idea that the capital outflow from the stock market is still a disadvantage. It has not broken the basic pattern that the current market is participated by stock capital. The rebound is resulted from position increase with in-market stock capital instead of capital inflow from outside the market. The investors should be aware of the pullback risk in the ChiNext Board after the significant rebound.