Further losses by Chinese stocks are limited after leveraged traders cut $218 billion of positions, according to HSBC Holdings Plc.
The outstanding balance of margin loans on the Shanghai and Shenzhen bourses has tumbled by 60 percent to $147 billion since the June peak. Borrowed funds now account for 2.8 percent of overall market capitalization, a 10-month low and down from a record 4.5 percent earlier this year, according to data compiled by Bloomberg. The figures don’t include unofficial debt.
“We’ve seen the worst” for mainland stocks, said Steven Sun, Hong Kong-based head of China equity strategy at HSBC, who has a neutral position on yuan denominated shares. “The whole deleveraging process is largely over.”
As China’s stock boom turned to bust in June, traders started to cut a record pile of debt on speculation valuations were unjustified. Margin calls and a government crackdown on unregulated loans forced further selling. President Xi Jinping’s comments on Tuesday that equities have entered a phase of “self recovery” signal that policy makers consider the market strong enough to withstand a reduction of unprecedented state support.