China’s Fix for a Margin-Debt Boom Roiling Stocks? More Leverage
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As China’s stock-market slump spurs margin traders to unwind record bullish bets, authorities have responded with a policy that analysts say could exacerbate the problem: make it easier to take on even more leverage.
Hours after a one-day tumble of 5.2 percent in the Shanghai Composite Index, China’s securities regulator eased collateral requirements for leveraged investors and allowed brokerages to securitize margin loans -- a move that frees up room to extend credit after a nine-fold surge in outstanding margin debt in two years. Brokerages have leeway to boost lending by about $300 billion, based on regulatory caps announced Wednesday.