To The Moon

A-shares have continued to fluctuate and adjust, with the trend of leverage capital reduction becoming evident. Since October, margin financing funds have seen a total net outflow of more than 80 billion yuan, and the margin financing and securities lending balance has repeatedly hit new lows for the year. According to Wind data, as of October 19, the A-share margin financing and securities lending balance was 2.4825 trillion yuan, dropping to the level of early December 2025. The latest margin financing balance was 2.4534 trillion yuan. It has been in a continuous net outflow state since October 9. After the net outflow exceeded 30 billion yuan on the 15th, the net outflow amounts on the 16th and 19th gradually narrowed, with the net outflow on the 19th amounting to 6.331 billion yuan.

Industry participants believe that A-shares entered the second round of deleveraging after July this year. Technology sectors such as electronics and communications suffered a relatively large impact during this round of deleveraging, while a small number of defensive sectors became safe havens. There is disagreement within the industry about whether leveraged funds have been fully cleared. Some believe there is still the possibility of further deleveraging, and that new pressure mainly comes from the negative feedback of leveraged funds; but others believe that with the introduction of short-term stabilization policies and the recovery of fundamentals, market sentiment may stabilize, and margin outflows may slow or even turn into inflows.

Electronics and communications lead in deleveraging intensity

Since late September this year, the A-share market has continued to fluctuate and adjust, with the Shanghai Composite Index once falling below 3700 points and hitting a stage low of 3674.82 points. As of October 20, it closed at 3735.37 points. From September 23 to October 20, among the four major A-share indices, the ChiNext Index fell the most, by 19.43%; followed by the STAR Market Composite Index, which fell 18.29%; the Shenzhen Composite Index fell more than 14%, while the Shanghai Composite Index fell 5.48%. Under these market conditions, the margin financing and securities lending balance dropped from 2.655 trillion yuan on September 23 to 2.4825 trillion yuan on October 19, shrinking by 172.466 billion yuan. Margin financing has also been in a continuous net outflow state since September 23, with 12 of 13 trading days showing net outflows, totaling 172.982 billion yuan. During this period, the net margin outflow on September 30 was the highest, reaching 39.232 billion yuan; followed by October 15, with a net outflow of 31.360 billion yuan.

Starting from October 13 this year, the cumulative net inflow of margin financing funds for the year turned negative. The strategy team at CITIC Securities believes that this sharp adjustment was mainly triggered by institutional heavy holdings and gradually spread to sectors with high margin financing ratios. Before October 9, the equal-weighted portfolio of the top 100 stocks heavily held by institutions fell significantly more than the equal-weighted portfolio of the top 100 stocks by margin financing ratio. But by October 15, the decline in the high-margin portfolio exceeded that of the institutional heavy-holding portfolio for the first time.

Technology growth sectors represented by AI computing power faced a relatively large impact during this round of deleveraging. From September 23 to October 19, all 31 primary industries under the Shenwan classification suffered net selling of margin financing funds. Among them, technology sectors such as electronics and communications had the largest deleveraging intensity. During this period, the electronics industry saw the largest net outflow of margin financing funds, reaching 61.462 billion yuan; the communications industry ranked second, with a net outflow of 25.376 billion yuan; the machinery equipment and power equipment industries also saw net outflows of more than 10 billion yuan. The non-ferrous metals, computers, biopharmaceuticals, and basic chemicals industries saw net outflows ranging from 6 billion yuan to 10 billion yuan.

By comparison, defensive sectors such as conglomerates, textiles and apparel, beauty care, commercial retail, and social services saw relatively small net outflows from leveraged funds, not exceeding 500 million yuan. If the time range is narrowed to since October, as of October 19, only three industries—conglomerates, commercial retail, and textiles and apparel—received net inflows of margin financing funds; the electronics and communications industries still suffered large-scale selling by margin financing funds, with net outflows of 35.386 billion yuan and 16.118 billion yuan, respectively.

At the individual stock level, from September 23 to October 19, stocks in industries such as CPO, PCB, storage, and semiconductors that were once sought after by the market were heavily sold by margin traders. Zhongji Innolight (300308.SZ), Eoptolink (300308.SZ), Victory Giant Technology (300476.SZ), GigaDevice (300476.SZ), Cambricon (300476.SZ), Dongshan Precision (300476.SZ), and Montage Technology (300476.SZ) ranked among the top in net outflows, ranging from 2 billion yuan to 6.7 billion yuan.

During this period, the top three stocks by net inflow were all new stocks, namely Hongfucheng (301716.SZ), Yuexin Semiconductor-U (301660.SZ), and Lygend Resources (001246.SZ). Most of the remaining stocks came from defensive sectors, such as Ping An Insurance (601318.SH), COSCO Shipping Holdings (601919.SH), and Weichai Power (000338.SZ).

Leveraged funds "stand by after retreat"

After the large net outflow of margin financing funds in the earlier period, the net outflow amount narrowed in the past two trading days, with the net margin outflow on October 19 falling below 10 billion yuan. "The decline in the margin financing balance does not necessarily mean that leverage reduction has been relatively sufficient," said Chen Gang, chief strategy analyst at Soochow Securities. He believes observations can be made from two aspects: on the one hand, the mindset of margin traders and their subsequent behavior may be more worth observing. In the July adjustment, the market showed the characteristics of "margin financing balance declining while collateral cash rising instead," reflecting that this round of deleveraging still carried a certain "semi-optimistic" tone: position adjustments had already occurred, but trading sentiment had not completely turned. Similarly, since October the market has initially shown similar characteristics, and it remains to be seen whether the margin financing balance and collateral cash scale will move toward a synchronous decline.

On the other hand, leverage reduction remains structurally uneven, and some instruments may still have room for further digestion. In Chen Gang's view, the clearing of leveraged funds is still insufficient, with capital sentiment remaining at "standing by after retreat" rather than completely exiting, and the deleveraging of some technology instruments is also relatively lagging, with the possibility of further deleveraging ahead. "A-shares are in the second wave of leverage structure adjustment, compounded by overseas liquidity tightening and Middle East geopolitical disturbances, and risk appetite continues to be under pressure," said the strategy team at CITIC Construction Investment. The team believes that during this adjustment, fluctuations in the capital market have re-amplified, leveraged funds have continued to flow out, and the possibility of the market accelerating downward due to passive deleveraging has risen. The continued role of market stabilization funds in providing support is becoming particularly critical.

"The new pressure mainly comes from the negative feedback of leveraged funds," said a research report released by Zhongtai Securities. Recently, the decline in the margin financing and securities lending guarantee ratio has accelerated significantly again, indicating that after the index fell into a new low range, some newly added leverage and absolute-return funds are once again approaching risk lines. At present, retail sentiment has returned to the historical bottom buy-signal range, and long-term stable funds are also continuing to flow into ETFs such as CSI 300, STAR 50, ChiNext Index, and CSI 1000. However, it should be noted that compared with the rescue efforts to reverse liquidity risks in the past two years, the inflow intensity and duration in the technology and small- and mid-cap directions still need to be improved.

The strategy team at Sinolink Securities believes that in the future it is necessary to watch whether the net outflow of margin financing and securities lending funds can gradually slow and whether the maintenance guarantee ratio can gradually stabilize and rebound. According to data disclosed by China Securities Data Co., Ltd., the average maintenance guarantee ratio for margin financing and securities lending was 279.82% on September 23, then continued to decline, falling to 255.01% by October 19. However, in the past three trading days (October 15 to October 19), the average maintenance guarantee ratio for margin financing and securities lending remained around 250%.

The strategy team at Huajin Securities believes that, at present, after the large outflows of margin financing in September and October, with the introduction of short-term stabilization policies and the recovery of fundamentals, market sentiment may stabilize, and margin outflows may slow or even turn into inflows.