(Yicai) Sept. 19 -- China’s margin trading balance surged to a record high on Sept. 17, sending the Shanghai and Shenzhen stock markets to new highs yesterday before they retreated to close lower. The tug-of-war between bulls and bears may last for some time, but the long-term outlook for the market remains positive, industry insiders said.

The Shanghai Composite Index closed down 1.2 percent at 3,831.66 yesterday, after rising earlier in the day to 3,899.96, the highest since August 2015. The Shenzhen Component Index ended the 1.1 percent lower at 13,075.66, after hitting 13,328.10, the highest since March 2022. And the ChiNext Index fell 1.6 percent to close at 3,095.85, after climbing to 3,168.68, its loftiest since October 2024.

The margin trading balance on the Shanghai and Shenzhen stock markets, which is a key gauge of market sentiment and leverage levels, reached a record CNY2.405 trillion (USD337.6 billion) two days ago. The electronics, power equipment, non-bank finance, and computer sectors were among the most favored by leveraged funds.

The surge in margin trading, where investors buy or sell securities using funds borrowed from a broker, has coincided with an increase in retail investors. The number of individual investors climbed 0.6 percent on Sept. 17 from Sept. 1 to 7.66 million, according to data from China Securities Data.

“Sharp adjustments during rapid rallies are normal fluctuations,” Hua Xiaowei, director of the Shanghai Securities Research Institute, said in response to the pullback. “It does not necessarily mean that the upward trend is over.”

Short- and long-position players will likely continue to jockey with each other for some time, Hua said. While a major continuous correction is unlikely, further upward momentum will require patience, and the rapid rally seen last month may shift into high-level fluctuations, he added.

Value and blue-chip stocks are still attractive thanks to stable cash flows and improved interest rate spreads, said Zhang Di, chief macro analyst at China Galaxy Securities. Pricey technology stocks may come under pressure without further easing measures, but the medium- to long-term outlook for the market remains upbeat.

The strategy team at Guotai Haitong Securities believes that the rally will not stop here and Chinese stock indexes could scale more new highs this year.

Editor: Kim Taylor