Looser controls on margin trading drive gains in Chinese stocks

Chinese stocks closed higher at the start of the week, boosted by Chinese policy-makers´ decision to loosen controls on margin trading.

The Shanghai Stock Exchange´s Composite Index finished the session with gains of 2.15% to end the day at 3,018.802, alongside gains of 2.68% in the Shenzhen Stock Exchange´s A- share index.

On Friday, China Securities Finance Corp. said it would resume loans on certain durations of margin lending and reduce the costs of borrowing.

However, other of the main regional bourses ended the day lower, such as Tokyo´s Nikkei-225, which slid 1.25% into the close to end at 16,724.81.

"Much of today morning's market rally, while building on momentum from last week, is also driven by the fact that policy makers have loosened controls on margin trading," Michael Reid at Deutsche Bank said in a research note sent to clients.

"One might remember rising margin debt as powering the surge in the Chinese stock market last year, while also exacerbating the rout as investors deleveraged. It will certainly be interesting how market microstructure evolves in light of these changes; nevertheless, we can already see Chinese brokerages rallying today morning so the market reaction certainly seems positive."