Caixin Warns on Bank Fueled Stock Market Leverage

Caixin starts off by saying with all the bank capital flowing directly and indirectly into the market, it's no wonder stocks are soaring. In developed markets, margin debt is around 1.5% of market capitalization, but in China it is already at 3%. Financial institutions are also stretched. Although they could theoretically support greater leverage in the market, they have other capital needs and may need to start refinancing

The size of the two financial brokerage business still maintain growth. As of May 5, Shanghai and Shenzhen in the two financial business financing balance has reached 1.86 trillion yuan. If not brokers have started independent control of the two financial business size, growth may be faster. According to Credit Suisse report May 6 estimates the size of the umbrella trust in between 400 billion to 500 billion yuan; the size of the stock return swap in 400 billion yuan; the size of the stock pledged repo in 600 billion to $ 8000 billion. Return swaps and collateral repo financing may not be all for the stock in the secondary market, but given the current market conditions, which should be put into the stock market accounts for a significant proportion.

The securities industry is 679.2 billion yuan of net capital scale. According to regulatory requirements prior two financial services, the size of two financial services available theoretical net capital can support the 4 trillion yuan, much higher than the current actual financing balance. But in fact there are many other businesses need to consume net incremental capital and securities firms in addition to net capital indicators also liquidity indicators, always set aside some "food stocks"; Some companies even require maneuvers other securities business to serve the two financial free up space. For example, four times the size of the two financial CITIC Zhejiang reached net capital, SW reached three times. If you want to further expand these brokers to borrow money begets money "capital intermediary business", we need to start refinancing.

The growth in margin resembles a chart of Baofeng.

Conclusion:

　　Margin frontline practitioners become more cautious, sell-side analysts still no shortage of bullish growth prospects of such securities firm voice. But CITIC Securities said the two financial business leader opinion, the future trend of capital securities intermediary business should be biased institutional clients complex business, which reflects the more technical content, such as to develop a higher threshold margin, rather than retail of financing; in addition, high leverage more suitable for large-scale, low-risk investments. "From the outside market experience, financing business growing so fast, in fact, the process of elimination of retail, warehouse explosion many people are forced to leave. It is a big challenge for the industry."

"Analysts are also young, they have not experience a storm." A senior broker said the new financial reporter.

Caixin: 挤压A股杠杆