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.
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