Summary of Key Points
From July 2nd to 20th, during the adjustment period in the A-share market, investors using leverage to trade stocks (known as "leveraged funds") withdrew their investments for 13 consecutive days. The balance of margin trading decreased from a peak of 3 trillion yuan to 2.72 trillion yuan, a reduction of nearly 300 billion yuan, with the largest single-day withdrawal amount reaching 80 billion yuan. Technology stocks, particularly those in the electronics and power equipment sectors, were the hardest hit, with the electronics sector alone losing over 100 billion yuan in value; leading companies like Cambricon saw significant selling pressure. In contrast, less capital flowed out of weaker cyclical industries such as beauty and wellness, agriculture, forestry, animal husbandry, and fisheries. Some mid-sized companies and technology stocks were even bought against the trend. The risk of margin trading positions being liquidated (known as "margin calls") is currently lower than expected, mainly due to investors voluntarily reducing their leverage levels rather than being forced to close their positions. On July 21st, the market stabilized and saw a significant increase, leading analysts to believe that the process of reducing leverage may be coming to an end.
I. Leveraged Funds Withdrew 300 Billion Yuan in 13 Days, with the Largest Single-Day Withdrawal at 80 Billion Yuan
What is the balance of margin trading? Simply put, it represents the total amount of money investors have borrowed to buy stocks (financing) or sold stocks short (short selling). For this analysis, we are focusing on financing activities, as short selling accounts for less than 1% of the total. From July 2nd to 20th, the balance of margin trading decreased daily, falling from 3 trillion yuan to 2.72 trillion yuan, a reduction of nearly 300 billion yuan—equivalent to the market value of about three Maotai companies (Maotai's current market value is around 1 trillion yuan). The most dramatic day was July 17th, when the balance dropped by 81.1 billion yuan, the largest single-day decrease this year.
Historical Comparison: The last time there was a consecutive decline of more than 10 days was in August 2024, when the total reduction was only 29 billion yuan. This time, the scale is more than ten times larger, but the speed is faster. Why did the funds withdraw so quickly? Because the Shanghai Composite Index fell from 4,100 points to 3,800 points in July, causing significant market volatility, and leveraged investors were afraid of further losses, so they quickly repaid the borrowed money.
II. Technology Stocks Were the Hardest Hit
When leveraged funds withdrew, technology stocks were the first to be sold. Over the 13 days, the balance of financing decreased across all sectors, but the electronics, power equipment, and machinery sectors saw the largest reductions:
- Electronics Sector: A total of 123.7 billion yuan was withdrawn.
- Leading Technology Stocks: Cambricon experienced significant selling pressure, with 6 billion yuan sold; Zhongji Xuchuang and Lanqi Technology each had sales of over 2 billion yuan.
Why Sell Technology Stocks? Technology stocks had seen rapid gains earlier on, and during the adjustment period, their prices were highly volatile. Leveraged investors feared that they might not be able to repay the borrowed money if the stocks continued to decline, so they sold these high-risk assets first.
III. Weaker Cyclical Sectors Were Preferred, While Some Mid-Sized Companies and Technology Stocks Were Bought Against the Trend
Despite the overall withdrawal of funds, a few sectors were quietly purchased by leveraged investors:
- Weaker Cyclical Industries: Beauty and wellness (e.g., cosmetics), agriculture, forestry, animal husbandry, and fisheries saw minimal capital outflows or almost no withdrawals at all. These industries are less affected by economic fluctuations, as people still need to buy skincare products and food regardless of the economy's condition.
- Stocks Bought Against the Trend: New Yisheng (an exception among technology stocks) was bought for 1.6 billion yuan, and companies like Zoomlion and China State Shipbuilding also saw substantial purchases.
An Interesting Observation: New Yisheng was both bought by leveraged investors and sold short by short sellers, indicating that there were conflicting views on the stock's performance (some believed it would rise, while others expected a drop).
IV. No Immediate Risk of Margin Calls; Voluntary Reduction in Leverage is the Main Reason
Many people are concerned about whether the withdrawal of leveraged funds could lead to margin calls (where stocks fall so low that investors can't repay their loans and brokers are forced to sell their shares). Currently, the risk seems low:
- Brokers Report: Only one account in a particular brokerage office fell below the 130% liquidation threshold (meaning the stock's market value was only 1.3 times the borrowed amount), but no forced sales occurred.
- Analysts Say: The withdrawal is mainly due to investors voluntarily reducing their leverage, not a panic-induced sell-off.
Comparison with March 2025: Back then, the decline in margin trading lasted for 9 days due to U.S. tariff tensions, and it was only stabilized after intervention by state-owned funds. Although the current situation is more significant, the risk is lower.
V. The Process of Reducing Leverage May Be Ending; Market Stability Signals Appear
What will happen to the market in the future? Analysts have two perspectives:
1. The Reduction of Leverage is Nearly Over: Guojin Securities believes that after the sharp decline last week, the process of reducing leverage may be coming to an end, and there is limited room for further declines in technology stocks.
2. Market Stability: On July 21st, all three major indices saw significant gains (the ChiNext index rose by 7%), and trading volume increased to 2.96 trillion yuan. The involvement of state-owned funds and corporate buybacks also indicate that the market has support.
In Conclusion: Although a large amount of leveraged funds have withdrawn, the risk is manageable, and the market has begun to stabilize. Technology stocks are unlikely to experience another sharp decline.
(The entire analysis explains the scale, direction, risks, and future trends of the withdrawal of leveraged funds in plain language, making it understandable for non-professionals.)