China Brokers Face Double-Whammy As Margin Finance Curbed

January 21, 2015 Nemes Finance

China’s biggest brokerages are getting
pressed on 2 fronts as regulatory authorities curb loans to equity
traders.

Not only does the three-month ban on brand-new margin-trading
accounts at Citic Securities Co. (600030) and Haitong Securities Co. (600837).
minimize their prospective revenues from lending to customers, it also.
curbs one of the most significant purchasers of the companies’ own shares: margin.
traders.

The brokerages are amongst the leading 5 holdings of investors.
utilizing obtained cash, according to Shao Ziqin, a Shenzhen-based.
expert for Citic, who mentioned calculations as of Jan. 15. Of the.
leading 20, six were brokers and seven were banks. They all plunged.
today as the Shanghai Composite Index (SHCOMP) fell the most because 2008.

“Bank and brokerage stocks will definitely be the hardest.
hit since leveraged funds assisted to press up their share costs.
in the first place,” stated Zhang Yanbing, an analyst at Zheshang.
Securities Co. in Shanghai.

Investors borrowed 32.6 billion yuan ($5.2 billion) to buy.
Citic Securities shares as of Jan. 15, accounting for about 3.
percent of exceptional margin loans, according to Shao, who.
mentioned Wind Details Co. information. Haitong purchases had attracted.
14.8 billion yuan of margin loans.

Relative Value.

The total quantity of shares bought on margin has actually risen.
more than tenfold in the previous 2 years to a record 1.1 trillion.
yuan, or about 3.5 percent of the country’s market.
capitalization. In a margin trade, investors use their own cash.
for simply a portion of their stock purchase, obtaining the rest.
from a broker. The loans are backed by the investors’ equity.
holdings, meaning that they might be required to offer when costs.
fall to repay their financial obligation.

Citic Securities stated in an email that its operations.
continue to be unchanged, including a strategy to offer shares through a private.
positioning in Hong Kong. Haitong Securities board secretary Jin.
Xiaobin decreased to comment when called by phone.

While shares of both brokerages toppled by the day-to-day 10.
percent limitation in mainland trading today, they’re still sitting.
on gains of more than One Hundred Percent in the past 12 months. That.
compares to a 56 percent boost in the Shanghai Composite.

Brokerage shares will certainly remain under pressure in the next couple of.
days, according to Ryan Huang, Singapore-based market strategist.
at IG Ltd. Regulators are worried the world-beating gains in.
the nation’s equity market have been too fast, he said.

Citic and Haitong let consumers delay paying back financing.
for longer than they were supposed to, the China Securities.
Regulatory Commission said on its microblog Friday, without.
providing more information. Guotai Junan Securities Co. was also.
suspended from adding margin accounts, while the regulator.
punished nine other securities companies for offenses including.
permitting unqualified investors to open margin finance and.
securities financing accounts.

The yuan-denominated A shares of Citic Securities are.
valued at a premium of about 55 percent versus the business’s.
Hong Kong-listed stock, the most on record, according to information.
compiled by Bloomberg. Haitong trades at a 68 percent premium,.
also an all-time high.

To get in touch with Bloomberg News personnel for this story:.
Aipeng Soo in Beijing at.
asoo4@bloomberg.net

To contact the editors accountable for this story:.
Paul Panckhurst at.
ppanckhurst@bloomberg.net;.
Sarah McDonald at.
smcdonald23@bloomberg.net.
Michael Patterson

Finance,

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