(Yicai) Oct. 30 -- Chinese stocks have seen sharp deleveraging since late June, as investors have pared back margin-financed positions, particularly in electronics and communications stocks linked with the infrastructure buildout for artificial intelligence. The balance of margin financing has wiped out all of its gains for the year, falling back to levels last seen in September 2025.

The combined outstanding of margin financing and securities lending fell to a new year-to-date low of CNY2.41 trillion (USD362 billion) on Oct. 27, down CNY620 billion (USD93 billion) from CNY3.03 trillion in nearly four months, according to figures compiled by Wind Information.

The decline has hit CNY164.4 billion this month, including a CNY16.4 billion (USD2.5 billion) drop on the 27th from the previous trading day, extending the losing streak to 13 consecutive sessions, per Wind’s data.

Margin trading allows investors to borrow funds from brokerages, using the securities they already own as collateral, to purchase additional shares and dial up their market exposure. Securities lending, by contrast, involves investors borrowing shares from financial institutions for a fee and selling them in the market, typically in the expectation that they can buy them back at a lower price, return them to the lender, and pocket the difference.

At the start of this year, China’s balance of the two stood at CNY2.56 trillion before rising to a high of CNY3.03 trillion on June 25, but remained above CNY3 trillion for only nine trading days. It began a sustained decline in July, falling by more than CNY400 billion that month, the sharpest monthly drop of the year, the figures showed.

This sharp correction was largely triggered by declines in stocks heavily held by institutional investors, with the sell-off spreading to sectors with high levels of margin-financed investment, according to a source at a brokerage firm.

The flow of leveraged funds has reversed, as the electronics and communications sectors, which saw the highest net margin buying in the first half, have become the main targets for net margin selling in the second half.

In the six months ended June 30, electronics was the most favored sector by leveraged funds, attracting a cumulative net inflow of CNY269.8 billion, according to Wind’s data. The communications sector was second at CNY71.1 billion.

But as concerns about the returns on AI investment grow, leveraged investors have begun to withdraw from technology growth stocks associated with AI computing infrastructure. Electronics and communications have seen some of the most aggressive deleveraging.

From July to Oct. 27, electronics stocks recorded net outflows of CNY211.7 billion in margin financing funds, about CNY58 billion more than the net inflow in the first half. Communications stocks ranked second, with net outflows of CNY76.4 billion, already exceeding the net inflows they attracted in the first half of the year.

Despite the sharp pullback, risks in the margin financing and securities lending market remain broadly manageable because market participants have different cost bases and there is no risk of widespread forced liquidation, according to industry insiders.

Editor: Futura Costaglione