One of the main drivers of China’s go-go equity market – margin lending – just slipped down a notch, according to Bloomberg.
Margin debt on the Shanghai Stock Exchange recently fell to $238 billion, a billion dollar decline from the previous day as volatility rose to its highest since 2009.
While the drop was negligible, the fall was noteworthy since its dramatic surge seemed perfectly correlated with the SHCOMP’s historic rise, and might even spell bad news for the nation’s current equity valuations.
Median prices in the Shanghai stock exchange currently value its shares at a whopping 92 times earnings, and that’s after it fell over 13% last week.
With retail investors accounting for 80% of all trading as well as a big chunk of the leverage currently inherent in the market, China’s margin trading situation should be interesting to watch as it plays out. Stay tuned.
Photo credit: Wolfgang Staudt via Flickr