* Margin lending falls 6 pct to 3-month low
* Investors cautious on economic concerns, tighter policies
* Margin trading levels 60 pct lower than mid-2015 peak
By Luoyan Liu and John Ruwitch
SHANGHAI, May 23 China's month-long stock market
correction has suppressed investor appetite for risk and pushed
margin lending to its lowest level in three months, as players
tread cautiously amid concerns about economic growth and policy
Margin lending, wherein investors can multiply their
investible funds by using their securities as collateral,
dropped 6 percent between mid-April and mid-May in line with a
decline of a similar magnitude in China's main stock indices.
Current margin trading levels are 60 percent lower than
their peaks two years ago.
Investors said the decline in such margin trading was driven
both by expectations that the stock markets will stay weak as
well as China's ongoing tightening of monetary policy to rein in
excessive borrowing and speculative investment.
Analysts also reckon that China's regulatory push since the
market crash of 2015 has rooted out illegal and excessive margin
financing, and thus the decline in such financing wouldn't be a
cause for alarm.
"Margin lending usually is seen as a barometer of risk
appetite and sentiment, because it's used more by aggressive
investors," said Yan Kaiwen, an analyst with China Fortune
Yan added that the decline in margin lending was highly
correlated with the drop in the major indexes.
Margin lending stood at 932.4 billion yuan ($135.31 billion)
in mid-April, which was when Chinese stocks began sliding,
according to data from the China Securities Finance Corporation
As of Monday, the benchmark Shanghai Composite Index
was down 5.6 percent, the CSI300 Index was 2.1 percent
lower and the value of the margin loans had fallen 6 percent to
876 billion yuan, the lowest level in three months.
BEST TO STAY CAUTIOUS
It was not clear how long the sluggishness would last, but
investors said it was best to remain cautious.
"For now, I would not like to place more bets by using
margin, as the market is still weak," said a Shenzhen-based
investor surnamed Wang.
China's securities regulator allowed margin financing
business for stock purchases in early 2010, and the practice
reached a peak of 2.26 trillion yuan in mid-2015 before the
market's spectacular crash.
Only institutional investors and retail investors with
500,000 yuan or more in their share trading accounts can trade
shares on margin.
Margin financing collapsed in the aftermath of the stock
market crash of mid-2015, during which the Shanghai stock index
lost 40 percent of its value in three months, when the
government cracked down on risky financing.
It has since recovered slowly, with declines a rare event.
Notable exceptions were in January 2016 and January 2017, when
financing tumbled along with stocks.
Yang Weixiao, an analyst with Founder Securities, said
margin lending could pick up again as investor confidence and
market momentum pick up. But that wasn't happening yet.
"Given the still tight liquidity conditions and regulations,
investors are expected to be very cautious for now," he said.
($1 = 6.8910 Chinese yuan)
(Editing by Vidya Ranganathan and Randy Fabi)