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Thursday, May 7, 2015, 12:26

Stocks slump, margin trading under scanner

By Xie Yu /

HONG KONG - The bull market in China has been under major corrections since week as authorities put the brakes on margin trading on the stock market, while most investors believe that the bull run is far from ending.

The benchmark Shanghai Composite Index slumped 1.41 percent to 4169.6 on Thursday morning, extending losses after it tumbled 4 percent and 1.62 percent, Tuesday and Wednesday, respectively.

Industrial construction firms, electric power suppliers, insurance companies and airway carriers saw the biggest losses during the morning.

Analysts said the securities watchdog - China Securities Regulatory Commission - has been stressing deleveraging the heated market, as investors are heavily relying on margin lending to buy stocks, which enlarges market risk.

China Securities Journal quoted sources from the banking sector on Thursday as saying that the watchdog has started inspections to check whether capital is flowing into the stock market from the commercial market through irregular channels.

“We are aware that the supervisors are sensitive about leverage on the stock market. It is not a surprise that there is top-down urge to decrease margin lending, and it is affecting liquidity. However, the majority believes the central government wants the bull market last,” said Nick Fu, a strategist with a Shanghai based brokerage.

Analysts said a major correction is providing good opportunities for late comers to get on the train, and more are expecting the central bank to announce another rate cut in the coming weeks which will inject new liquidity into the equity market.

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