CHINA’S margin debt has plunged by 1 trillion yuan (US$156 billion) from its June peak as stock traders close out bets using borrowed money amid a US$5 trillion rout.

    Outstanding margin loans on the Shanghai and Shenzhen stock exchanges fell to about 1.25 trillion yuan Monday from a record high of 2.27 trillion yuan June 18. The Shanghai Composite Index has plunged 45 percent from its June peak amid concern that the highest valuations among major world markets are unjustified given the outlook for slowing economic growth.

    While KGI Securities Co. and Shenwan Hongyuan Group Co. say the slump in margin lending will help reduce volatility from the highest level in almost two decades, CIMB Securities Ltd.’s Scott Hong sees little chance of a sustained rally without a rebound in leverage.

    “The bull run was driven by leveraged funds and the bull will cease to exist when leverage fades,” said Hong, an analyst at CIMB Securities in Hong Kong. “Range-bound consolidation would be the best-case scenario.”

    Chinese shares fell for a fifth day yesterday as traders weighed the impact of an overnight interest-rate cut. The nation’s equities have lost US$5 trillion, or half their value, since mid-June.

    The government has halted direct intervention in equities this week as policymakers debate the merits of an unprecedented market rescue, according to people familiar with the situation.

    Stock market leverage has stayed relatively steady through unofficial channels, according to Credit Suisse Group AG. The firm estimated the amount of funding via products such as trusts at as much as 1.5 trillion yuan this month, versus 1.6 trillion yuan in May. (SD-Agencies)