Low Leverage Suggests China and HK Stock Market Has Room to Grow

Tiger_James Ooi
10-16 18:01

  • The outstanding balance of margin trading in China is still 17.5% lower than its 2021 peak, and margin as a percentage of market capitalization is relatively low at 1.8%. This suggests that the market is not overheating, contrary to what some investors may believe.

  • Typically, margin trading is highly correlated with the China equity market. The equity market tends to rise with increased margin trading activity, often peaking simultaneously. As of October 14, the total outstanding balance of margin trading in China has increased to 1.587 trillion yuan, which is still about 17.5% lower than its 2021 high of 1.9 trillion yuan.

  • Currently, outstanding margin trading accounts for approximately 1.8% of the total market capitalization of China stocks. However, this level remains relatively healthy compared to the 3.67% contribution seen in July 2015.

Source: Bloomberg, Tiger Brokers, 16 Oct 2024

Source: Bloomberg, Tiger Brokers, 16 Oct 2024

Conclusion:

  • I remain optimistic about the China equity market (Shanghai Composite Index $SSE Comp(000001.SH)$ and Hang Seng Index $HSI(HSI)$ ).

  • While the recent rally in China stocks seems to be losing momentum, I believe that ongoing stimulus measures should support another rally.

  • The total outstanding balance of margin trading in China does not appear to have reached its peak yet, nor has the equity market.

  • Although investors are disappointed with the lack of details regarding the size and scope of the stimulus, I see this ambiguity as a deliberate move to prevent an overheating stock market.

You may have interest know the China ETFs below：

Bull ETFs: $Direxion Daily FTSE China Bull 3X Shares(YINN)$ , $Direxion Daily CSI China Internet Index Bull 2x Shares(CWEB)$ $Invesco China Technology ETF(CQQQ)$ $CSOP A50 ETF(02822)$ $HSTECH ETF(03032)$ $HSTECH(HSTECH)$ $iShares China Large-Cap ETF(FXI)$

Invers ETFs： $Direxion Daily FTSE China Bear 3X Shares(YANG)$ , $XI2CSOPHSTECH(07552)$ , $ProShares UltraShort FTSE China 50(FXP)$ $ProShares Short FTSE China 50(YXI)$ $FI2 CSOP HSI(07500)$

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