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.
Trading on margins can of course lead to big profits if prices go up, but big losses if the numbers go down. With the apparent disconnect between China’s stock market growth and the current state of the country’s real economy, it is arguable that the fundamentals don’t support the current stock market level.
In 2015, the stock market raced up to just over 6,000 and then dropped dramatically to the mid-2,000s, and given the parallel highs of margin trading between now and 2015, it could be that those traders are back in dangerous territory.