"The excessive borrowing of retail investors led to big swings in China's stock market," Zheng Chunming, a Shanghai-based banking and brokerage analyst at Capital Securities Corp., said by phone. "The key thing everyone wants to know now is when we will see a stabilised market."
The estimated decline in funding is in addition to the slump in brokerages' margin financing, which now stands at 1.43 trillion yuan, down 37 per cent from June's high, and will be at about 1.4 trillion yuan by year-end, according to the median estimate of nine analysts.
Investors were burned when stocks plunged after a 150 per cent one-year rally through mid-June that was fueled by the explosion in leverage and suggestions in state media that a protracted bull run was a sure thing. The government jumped in to revive the market, triggering a three-week rally that ended with the rout on Monday.
Leaving aside the slump in brokerage margin finance, the biggest decline in leverage may be from money flowing out of products such as umbrella trusts, according to analysts at firms including CIMB Securities Ltd.
A smaller part of the debt for stocks has come from online peer-to-peer lenders. Now, some P2P firms are winding down those activities after the China Securities Regulatory Commission cracked down and the Internet regulator told website operators to pull "illegal" ads offering loans for stock investment.
The Shanghai company with the automated message, 51jiecai.com - a name which can be translated as "fast money today" - said July 15 that it would stop offering finance for stock purchases. When Bloomberg dialed on Monday and pressed two, a staff member, who wouldn't give his name, said that loans for stocks had been suspended; it was an oversight that the phone message was yet to be updated.
At Hao756.com in Hangzhou, a city in China's east, a spokeswoman, who didn't want to be named, said that the firm would return to its original car-loan business.
"Our business and profit are taking a very big hit," said Liu Yang, the chief executive of another online lender Miniu98.com, also in Hangzhou.
Estimates of the scale of borrowing for stock purchases vary widely, with substantial guesswork involved and not all analysts measuring the same things. Areas of conjecture include the amount of consumer lending diverted into shares.
The scope of the Chinese government's intervention, from banning major shareholders from selling stakes to arranging funding for share purchases, is making it harder for analysts to guess where the market goes next.
The stock market's initial rebound from a July 8 low was due to "artificially favourable supply and demand," including a ban on initial share sales and limits on brokerages selling proprietary stock holdings, according to Judy Zhang, a BNP Paribas SA banking analyst.
Overseas experience shows that the government could take four to seven years to exit rescue efforts, she said in a note dated July 25.
- Bloomberg
