NEW investor account openings in China have rebounded and margin financing have reached a record high as a regulatory crackdown on riskier forms of leveraged trade failed to deter investors.

    That’s good news for the country’s stock market rally, one of the few bright spots in China’s financial markets as housing prices have slid and yields on fixed income products have come under pressure.

    However, it also highlights a new pocket of risk for the government. The current rally, which has been strongly supported by new forms of leverage, is occurring in the context of a wide economic malaise expected to last well into the year, as China looks set to lower its economic growth forecasts once again.

    Investors opened a total of 501,184 new A-share trading accounts last week, up 12.3 percent from the previous week, according to data from China Securities Depository and Clearing Corp. (CSDC), the company that provides clearing services for the Shanghai and Shenzhen stock exchanges.

    The outstanding value of borrowing for margin trading hit a record high of 776 billion yuan (US$124.30 billion) on the Shanghai Stock Exchange on Monday, according to exchange data.

    That is up from 754 billion yuan Jan. 20, the day after the benchmark Shanghai Composite Index dropped 7.7 percent in a single day as investors reacted to regulatory squeezes on debt-fueled stock market speculation, which caused margin trading to briefly contract.

    Regulators punished three major brokerages for illegal operations in their margin trading Jan. 16 and at the same time drafted new regulations for the interbank market that would restrict the ability of non-bank institutions to tap that market for quick funds.

    But the market recovered after the stock regulator denied it had intentionally sought to suppress the rally. (SD-Agencies)