DOMESTIC investors’ borrowing to trade on the country’s stock markets — the force behind their extraordinary recent performance — has surpassed 2 trillion yuan for the first time, figures showed Friday, highlighting the risks in the rally.

    Data from China’s two exchanges in Shanghai and Shenzhen showed the combined outstanding balance of margin trading transactions — the use of borrowed funds on the stock markets — at 2.03 trillion yuan (US$328 billion) by the end of trade Thursday.

    Under the practice, investors only need to deposit a small proportion of the value of their trade, generating bigger profits for a given amount of money put down — but also bigger losses.

    “The growth of margin trading is making the market way too heated and risky,” Yingda Securities chief strategist Li Daxiao said.

    “Investors are borrowing money without any substantial collateral. They will face enormous risks once the market changes direction,” he said.

    The China Securities Regulatory Commission (CSRC) cracked down on margin trading in January, causing the Shanghai market to slump 7.70 percent, its biggest one-day fall since 2008.

    But the index resumed its rise. As of Thursday, Shanghai was up more than 40 percent so far this year, while Shenzhen had surged 91.7 percent.

    The margin trading balance has doubled in just six months. It surged above 1 trillion yuan Dec. 19 last year for the first time since March 31, 2010, when China’s market regulator first allowed the practice. (SD-Agencies)