SINGAPORE/SHANGHAI — China’s investors borrowed a record $322 billion to buy stocks this year, but sharp corrections this week and heightened regulatory scrutiny to cool overheated markets are now making them jittery about the leveraged bets.
While risks for China’s broader financial system have been elevated for months due to deflation in the economy and a persistent property debt crisis, the stock investors’ recent actions could add more pressure.
Outstanding margin financing in China, a key gauge of sentiment and leverage level, hit a record 2.3 trillion yuan ($321.55 billion) this week. And some speculators are diverting consumer loans to stock trading.
Those helped Shanghai stocks hit 10-year highs last week in a liquidity-driven rally despite a weak economy and simmering trade and geopolitical tensions.
But China’s blue-chip CSI300 Index slumped 2 percent on Thursday after Bloomberg News reported, citing sources, that regulators are considering measures to cool the market.
Cassiel Jiang, who borrowed 200,000 yuan to buy stocks for a quick profit, said she was a bit shocked by the increased volatility this week, when many stocks rose or fell 3 percent to 5 percent.
“If you haven’t taken profit at a peak, you wonder if you should cut the loss after you start bleeding,” said the 35-year-old programmer in Beijing. Jiang said she planned to reduce leverage so that she “could sleep well at night”.
While highly leveraged market bets are not new to China, the mounting concerns of retail investors and regulators underscore the risk of bubbles forming in the world’s second-largest economy.
In a sign of the regulatory caution, China’s top securities regulator Wu Qing pledged last week to “consolidate the good trend of the market” by actively promoting “long-term, rational, value” investment.
Chinese tech bellwether Cambricon, which is in Jiang’s portfolio, plunged 15 percent on Thursday after doubling in market value to 668 billion yuan in August.
The artificial intelligence chipmaker, seen as China’s answer to Nvidia, is among its most popular targets for speculators, who borrowed over 10 billion yuan to bet on the surging stock for outsized profit, according to exchange data.
Steven Leung, executive director of institutional sales at UOB Kay Hian in Hong Kong, said that the record amount of margin financing has made the market more vulnerable.
