Chinese investors are borrowing a record amount of cash to buy local stocks, further fueling a months-long rally that has largely been driven by liquidity, reports Bloomberg. The outstanding amount of margin trades in China’s onshore equities market climbed to RMB 2.28 trillion ($320 billion) Monday, surpassing the previous record of RMB 2.27 trillion in 2015. Traders added such leveraged positions for all but three days in August.
The world’s second-biggest stock market has been rallying since April, partly reflecting optimism that China’s breakthroughs in artificial intelligence and efforts to cut overcapacity will revive growth. In the absence of potent fiscal or monetary stimulus, whether Chinese households will use some of their $23 trillion cash pile to invest is seen as key to the next leg of the bull run.
“Margin financing was likely the main source of new funds entering the stock market in August,” according to China Merchants Securities analyst Zhang Xia. Active stock funds have seen net purchases and the registered size of equity-focused hedge funds have increased significantly since July, “all indicating that residents’ funds are beginning to accelerate allocation into the stock market,” he wrote in a note.