The margin trading balance outstanding in China's A-share market breached a nearly 14-month-low record on Monday after falling for 22 consecutive trading days, signaling a loss of steam in the market.
The total margin trading balance on the Shanghai and Shenzhen bourses stood at 899.6 billion yuan (about 136.7 U.S. dollars) on Monday, with the margin lending balancing at 897.6 billion yuan and security lending at 2 billion yuan.
Margin trading, where investors borrow money from a broker to buy stocks, fuelled growth in China's stock market and raised concerns that margin debt has created a bubble.
Traders have been taking advantage of lower borrowing costs after the central bank cut interest rates.
This high-risk but lucrative investment practice was favored by Chinese investors during the stock market frenzy last summer, with the balance peaking at over 2 trillion yuan in mid-June 2015. To contain the risk in a highly-leveraged stock market, the securities regulator decided to cap the size of margin trading and short selling for the first time, at four times a brokerage's net capital, the same month the market peaked.
With the stock market plunging in July and August, the margin trading balance decreased to slightly above 900 billion yuan in September 2015, before increasing again to 1.17 trillion yuan by the end of December of 2015 as the market recovered.
The 265 billion yuan reduction of the margin trading balance since the beginning of this year coincided with a market tailspin in January when the benchmark Shanghai Composite Index was chopped by nearly 25 percent.
The continuous decline was also seen by analysts as an indication that the bubble in the market has been, to some extent, unleashed.
China's stocks closed higher on Tuesday, with the benchmark Shanghai Composite Index up 2.26 percent, to 2,749.57 points, and the smaller Shenzhen index gaining 3.1 percent to close at 9,610.93 points.
