Is The China Share Selloff A Teapot Tempest?

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But concerns over margin trading in the A-share markets were brewing before the CSRC's move Friday.

"China's current level [of margin financing] is already close to or higher than the peak level of other countries and with the much faster pace suggests little upside potential but high downside risks," Citigroup said in a note last week before the CSRC announcement. It downgraded brokerages in the CSI300 index to underweight from overweight.

Margin balance - a measure of investor leverage - as a percentage of total market capitalization of A-shares stood at 2.4 percent at 2014's end, among the highest globally and on par with the New York Stock Exchange (NYSE), according to Bank of America Merrill Lynch.

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But while the NYSE's ratio rose from 0.9 percent to 2.4 percent over 13 years, it took A-shares just 17 months – from July 2013 to December 2014. As of Friday, outstanding margin trading was at a record high of 1.19 trillion yuan, according to data from OCBC.

Still bullish

Others also don't expect the selloff to mark a major change in the bullish view on China equities.

"Part of the reason why the market has gone up is because retail investors have been using margin to invest, but that's only a small part of why it's gone up," Mark Matthews, head of research for Asia at Julius Baer, said, citing factors including the Hong Kong-Shanghai stock connect, an anti-corruption drive, recent positive export data and improved corporate governance.

He also noted that CSRC move isn't a system-wide ban on margin financing, affecting only the named brokerages for a limited time period.

This is source I found from another site, main source you can find in last paragraph

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