(July 20): Chinese stock traders unwound leveraged positions at the fastest pace since the 2015-2016 market crash on Friday, as fears that the artificial intelligence (AI)-driven rally had become overstretched triggered a global equities rout.

The outstanding balance of debt taken out for stock purchases in Shanghai and Shenzhen fell by 2.8% to 2.75 trillion yuan (US$405 billion or RM1.66 billion) on Friday, the fastest pace of contraction since January 2016, according to data compiled by Bloomberg. Margin balances are seen as a key barometer of risk appetite.  

The deleveraging took place as Chinese equities tumbled across the board on Friday, with the Star 50 index falling more than 7% and the CSI 300 Index losing 3.6%. Investor caution ahead of the blockbuster listing of CXMT Corp likely also contributed to the pullback. Markets rebounded on Monday as a group of state funds said they have boosted holdings of local stocks, and as the regulator plans to meet with key industry participants. 

China’s memory-chip names have been among the hottest this year, drawing some of the heaviest margin financing. A sharp sell-off in the sector may have prompted investors to liquidate other positions to meet margin calls, contributing to a wider unwind across equities. 

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