China’s Stock Market Leverage Drops 60%

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The Chinese government is hailing the success of efforts to curb risk on the stock market follow a sharp decline in leveraged investment since its peak in 2015.

Zhang Ye (张野), chair of the China Banking Regulatory Commission Information Centre and member of the National Committee of the China People’s Political Consultative Conference, said on 6 March that share market risk had eased in three key areas, leading to a marked rise in stability and significant strengthening of risk resistance.

The scale of leveraged funds has fallen by 60% from its peak in June 2015 to 1.9 trillion yuan as of the end of 2017, with the margin trading balance declining to 1 trillion yuan from 2.27 trillion yuan.

Market valuation levels have also returned to rational levels, with the A-share dynamic price earnings ratio standing at 21.4 as of the end of 2017, for a decline of 20% since the start of 2016.

The composition of listed companies has also improved, with 667 small and medium enterprises whose price-earnings ratios are markedly lower than the figure of around 23 for the secondary market completing their IPO’s over the past two years, raising 382 billion yuan in funds.

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