At least 1,331 companies have halted trading on China’s mainland exchanges, freezing $2.6 trillion of shares, or about 40 percent of the country’s market value

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At least 1,331 companies have halted trading on China’s mainland exchanges, freezing $2.6 trillion of shares, or about 40 percent of the country’s market value

This article was posted on Jul 8, 2015 and is filed under Market News

China’s corporates have been big fans of stock-based loans too.

At least 1,331 companies have halted trading on China’s mainland exchanges, freezing $2.6 trillion of shares, or about 40 percent of the country’s market value, Bloomberg News reports today.

The Shanghai Composite Index has fallen 5.9 percent on Wednesday. It’s now about 32 percent below the peak of 5,166 it reached on June 12. The unwinding of margin loans is adding fuel to the fire. Individual investors, we all know by now, have used generous margin financing terms to enter the stock market and then build up their portfolios. Less known is that Chinese companies have been doing the exact same thing by using their own corporate stock to secure loans from banks.

That means that they stand to lose a lot when those share prices start trending dramatically lower.

Says Nick Lawson at Deutsche Bank: “Stocks are being suspended by the companies themselves because many have bank loans backed by shares which the banks themselves may want to liquidate, joining the queues of margin sellers.”

For more visit: Bloomberg.com

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