China’s biggest brokerages are getting squeezed on two fronts as regulators curb loans to equity traders.
Not only does the three-month ban on new margin-trading accounts at Citic Securities Co (中信證券) and Haitong Securities Co (海通證券) reduce their potential earnings from lending to clients, it also curbs one of the biggest buyers of the firms’ own shares: margin traders.
The brokerages are among the top five holdings of investors using borrowed money, according to Citic Securities Shenzhen-based analyst Shao Ziqin who cited calculations as of Thursday last week.
Of the top 20, six were brokers and seven were banks. They all plunged today as the Shanghai Composite Index headed for the biggest drop since 2008.
“Bank and brokerage stocks will definitely be the hardest hit since leveraged funds helped to push up their share prices in the first place,” Zheshang Securities Co (浙商證券) Shanghai-based analyst Zhang Yanbing (張彥斌) said.
Investors borrowed 32.6 billion yuan (US$5.24 billion) to buy Citic Securities shares as of Thursday last week, accounting for about 3 percent of outstanding margin loans, according to Shao, who cited Wind Information Co (Wind資訊) data. Haitong purchases had attracted 14.8 billion yuan of margin loans.
The total value of shares purchased on margin has surged more than tenfold in the past two years to a record 1.1 trillion yuan, or about 3.5 percent of the nation’s market capitalization. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest from a broker. The loans are backed by the investors’ equity holdings, meaning that they might be forced to sell when prices fall to repay their debt.
Citic Securities said in an e-mail that its operations remain unchanged, including a plan to sell shares via a private placement in Hong Kong.
Haitong Securities board secretary Jin Xiaobin (金曉斌) declined to comment when contacted by telephone.
While shares of both brokerages tumbled by the daily 10 percent limit in China trading today, they are still sitting on gains of more than 100 percent in the past 12 months.
That compares with a 56 percent increase in the Shanghai Composite.
DECOUPLING? In a sign of deeper US-China technology decoupling, Apple has held initial talks about using Baidu’s generative AI technology in its iPhones, the Wall Street Journal said China has introduced guidelines to phase out US microprocessors from Intel Corp and Advanced Micro Devices Inc (AMD) from government PCs and servers, the Financial Times reported yesterday. The procurement guidance also seeks to sideline Microsoft Corp’s Windows operating system and foreign-made database software in favor of domestic options, the report said. Chinese officials have begun following the guidelines, which were unveiled in December last year, the report said. They order government agencies above the township level to include criteria requiring “safe and reliable” processors and operating systems when making purchases, the newspaper said. The US has been aiming to boost domestic semiconductor
Nvidia Corp earned its US$2.2 trillion market cap by producing artificial intelligence (AI) chips that have become the lifeblood powering the new era of generative AI developers from start-ups to Microsoft Corp, OpenAI and Google parent Alphabet Inc. Almost as important to its hardware is the company’s nearly 20 years’ worth of computer code, which helps make competition with the company nearly impossible. More than 4 million global developers rely on Nvidia’s CUDA software platform to build AI and other apps. Now a coalition of tech companies that includes Qualcomm Inc, Google and Intel Corp plans to loosen Nvidia’s chokehold by going
ENERGY IMPACT: The electricity rate hike is expected to add about NT$4 billion to TSMC’s electricity bill a year and cut its annual earnings per share by about NT$0.154 Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has left its long-term gross margin target unchanged despite the government deciding on Friday to raise electricity rates. One of the heaviest power consuming manufacturers in Taiwan, TSMC said it always respects the government’s energy policy and would continue to operate its fabs by making efforts in energy conservation. The chipmaker said it has left a long-term goal of more than 53 percent in gross margin unchanged. The Ministry of Economic Affairs concluded a power rate evaluation meeting on Friday, announcing electricity tariffs would go up by 11 percent on average to about NT$3.4518 per kilowatt-hour (kWh)
OPENING ADDRESS: The CEO is to give a speech on the future of high-performance computing and artificial intelligence at the trade show’s opening on June 3, TAITRA said Advanced Micro Devices Inc (AMD) chairperson and chief executive officer Lisa Su (蘇姿丰) is to deliver the opening keynote speech at Computex Taipei this year, the event’s organizer said in a statement yesterday. Su is to give a speech on the future of high-performance computing (HPC) in the artificial intelligence (AI) era to open Computex, one of the world’s largest computer and technology trade events, at 9:30am on June 3, the Taiwan External Trade Development Council (TAITRA) said. Su is to explore how AMD and the company’s strategic technology partners are pushing the limits of AI and HPC, from data centers to