(Yicai) Aug. 12 -- China’s margin trading balance on the Shanghai and Shenzhen stock markets, which is a key gauge of market sentiment and leverage levels, topped CNY2 trillion (USD275 billion) yesterday for the first time in a decade, official data show.

Margin financing in Shanghai and Shenzhen stood at CNY2.0057 trillion yesterday, a jump of CNY16.7 billion from the day before. The last time it crossed the two-trillion yuan mark was back on July 1, 2015.

Margin financing in Shanghai was about CNY1.021 trillion (USD142 billion), while that in Shenzhen came in at roughly CNY983.9 billion (USD136.8 billion).

The balance has been climbing steadily since early June. As of yesterday, it had gained CNY219.5 billion (USD30.5 billion) from June 3, the first trading day that month. Margin financing now accounts for 2.29 percent of the free-float market capitalization of all mainland shares.

Seven sectors have seen margin trading exceed CNY100 billion (USD13.9 billion) since June 3, according to Wind Information data. These are electronics, non-bank finance, computers, pharmaceuticals and biotech, power equipment, machinery and autos.

A high margin debt balance often signals bullish sentiment, as investors show confidence by borrowing more and increasing their market exposure. In the 2015 bull run, the balance hit record highs, the market overheated and then fell sharply.

But the current rally is different from a decade ago in several ways, Securities Times reported.

First, the proportion of margin debt in free-float market capitalization is 2.29 percent, much less than the peak in 2015 when it was over 4 percent. This suggests that trading with borrowed funds is active but not yet excessively speculative.

Second, short-selling and lending levels of securities are relatively low. As of yesterday, short-selling and lending levels stood at around CNY14 billion (USD1.9 billion), a drop of CNY308 million (USD42.8 million) from the previous day.

Third, the investor base has grown significantly. There number of margin trading accounts has nearly doubled to 7.5 million from four million a decade ago. The list of eligible stocks has also expanded to include not only the main boards but also Shanghai’s Nasdaq-style Star Market and the Beijing Stock Exchange.

The upward trend in mainland stocks is likely to continue, the report said, citing Zhu Chengcheng, an analyst at Founder Securities. China’s gross domestic product expanded 5.3 percent in the first half, indicating that the economy remains generally stable and macro fundamentals are resilient.

The profitability of listed companies is also at the tail end of the downward cycle, and the recent roll out of supportive policies, such as those aimed at reducing “involution-style competition,” or excessive and self-defeating competition, should help profits recover, Zhu said. Ample market liquidity and the noticeably improved risk appetite could keep pushing mainland stocks higher.

As of Aug. 5, the combined margin financing and securities' lending balance had also exceeded CNY2 trillion (USD278.1 billion) for the first time since July 2, 2015.

Editor: Kim Taylor