China's next bear market seen in US$358b of margin loans

Shanghai

STOCK forecasters in search of an early warning system for the next Chinese bear market are zeroing in on the country's record US$358 billion pile of margin debt.

When that three-year build-up of leveraged positions starts to unwind, regulators will struggle to limit the sell-off, according to Bocom International Holdings Co and Rabobank International. Almost all of this year's biggest declines in the Shanghai Composite Index, including a 6.5 per cent slump on May 28, were sparked by investor concerns over margin-trading restrictions. The securities regulator announced plans last Friday to limit the amount that brokerages can lend for stock trading.