Bloomberg reports that on November 23, stock exchanges of Shanghai and Shenzhen will tighten margin requirements for share transactions to avoid new bubbles on the securities market.
The margin requirement will be raised to 100% from 50%. It means that traders with 1 million yuan in their accounts may borrow no more than 1 million yuan for stock purchases.
Experts worry that such a decision may have a negative impact on investors’ confidence in the Chinese market. However, Analysts at Hermes Investment Management Ltd. and Union Bancaire Privee point out that new limits will form a solid ground for further growth in the Chinese stock market.
Gary Greenberg, head of emerging-market equities at Hermes Investment Management, said that “in the very short term it might have a negative effect, but long term it increases the robustness of the Chinese market.”
For the past six weeks, margin financing, which decreased by more than half during the summer slump in China’s exchange, rose by more than 20% following an increase in the Shanghai Composite Index.
Shanghai Composite plummeted by 43% in June 12 to August 26, 2015. In this period, the volume of leveraged positions sank by more than $200 million.
