LEVERAGED bets on Chinese stocks have increased to a record versus the size of the market as prices fall faster than margin traders cut positions.

    The outstanding balance of margin loans on the Shanghai and Shenzhen bourses climbed to 4.4 percent of overall market capitalization July 2 from 3.6 percent June 12, before the rout began.

    The data don’t include unregulated borrowing, which BOCOM International Holdings Co. estimates at around US$322 billion. That would increase the debt to market cap ratio to more than 9 percent.

    Higher leverage may undermine government measures to stem the steepest three-week rout in the nation’s equities in a quarter-century.

    Margin traders reduced positions for nine days through Thursday, the longest stretch of declines on record, even as the central bank cut interest rates and the securities regulator eased margin-trading rules.

    The outstanding balance of margin loans on the Shanghai and Shenzhen bourses has fallen by US$46.1 billion to US$319 billion through Thursday from the peak June 18, according to the latest exchange data.

    The 13 percent drop compares with a 31 percent, US$3.2 trillion plunge in the value of Chinese equities through Friday.

    A 500 percent surge in leveraged wagers had helped propel the Shanghai Composite Index to a more than 150 percent gain in the 12 months through June 12.

    Unofficial margin accounts have significantly higher leverage than those opened through brokerages and can invest in any stock, not just those mandated by the regulator, BOCOM International said in a note June 29.

    (SD-Agencies)