Margin trading needs greater regulation, say experts
With over 50 percent of stocks frozen and government mandates not to sell, a rally continued in China’s mainland stock markets on Friday, but experts said authorities need to tighten supervision over margin trading once more.
The benchmark Shanghai Composite Index surged 4.54 percent to close at 3,877.80 points Friday.
Meanwhile, the Shenzhen Component Index gained 4.59 percent to 12,038.15 points, while ChiNext, the country’s NASDAQ-style board for high-tech and start-ups, soared 4.11 percent to 2,535.89 points.
More than 1,300 stocks jumped by the 10 percent daily limit on the two bourses thanks to a slew of support measures rolled out this week.
“So far it looks good, but how the market will perform next week will be critical,” Su Xinming, an official from the Innovation and Regulation Department of the China Banking Regulatory Commission (CBRC), told the Global Times. “About half of the listed companies have still halted their trading, so it remains to be seen what kind of impact their trading resumption will generate.”
Shares of about 1,400 companies listed in Shanghai and Shenzhen were still suspended from trading Friday, most of which are likely to resume trading in the coming weeks.
“As the market has stabilized and confidence has clearly recovered, the trading resumption of companies that sought to escape the previous slump won’t cause much volatility,” Yu Pingkang, chief economist with Huatai Securities, told the Global Times.
“The most urgent thing for the market right now is to prevent the abuse of leverage, because we’ve noticed a rising investor interest in margin trading again,” he pointed out. “Previously the securities regulators relaxed their controls on margin financing in order to stabilize the market, but with the market stabilizing, they need to continue the move.”
Margin financing, where investors borrow from brokerages to buy stocks, has been seen as the major drive behind both the previous bull run and the recent market turmoil.
Relevant authorities including the CBRC, the central bank and the China Securities Regulatory Commission will work together to tighten risk controls in the margin trading business, Su said.
“We need to learn a lesson from the significant plunge, and brokerages need to learn how to manage the risk,” Su noted. “The reason why authorities rolled out so many support measures is because the recent market plunge has caused a liquidity risk, and they don’t want the risk to spill over to other parts of the real economy.”
As of Wednesday, the Shanghai Composite Index had slumped 32.11 percent from June 12, while ChiNext lost 39.38 percent during the period.
In addition, the CSRC said on Friday that it will continue establishing approval procedures for IPOs, though there will be no IPOs in the near future, the Xinhua News Agency reported.