Today marks a significant day for the stock market, with intriguing developments unfolding. On one hand, A-share margin financing hit a historic high on September 1st, breaking the previous record set during the bull market peak around June 2016. The Shanghai Composite Index is approaching the sensitive 3,900-4,000 point range. On the other hand, important events are imminent, and markets typically approach such timing with caution.

The Shanghai Composite Index experienced an intraday decline of nearly 50 points today, with previously hot sectors including military, aerospace, telecommunications, CPO concepts, and semiconductors all showing corrections. Starting around 11 AM, banking, petroleum and petrochemicals, and utilities sectors saw noticeable capital inflows, with major oil companies and the Big Four banks becoming active. This suggests national team intervention to prevent excessive market volatility over the next two days.

This analysis focuses on whether the historic high in A-share margin financing signals a "yellow warning light" and whether the market has entered a higher risk period.

According to statistics, A-share margin financing reached 2.28 trillion yuan as of September 1st, breaking the historic record of 2.27 trillion yuan set on June 18, 2015. The background then was strong policy support for the stock market starting from the second half of 2014, becoming more evident during the Two Sessions in March 2015. The result was a surge in A-shares, with retail investors flooding in and leveraging aggressively.

On June 12, 2015 (Friday), the Shanghai Composite reached 5,178.19 points. Analysis on June 13th suggested the market was too frenzied and could face a 1,000-point correction. Regulators recognized the danger and began cracking down on off-exchange margin financing, but the timing was poor as the market was already at very high levels.

The market began correcting from June 15th (Monday), with sharp declines on Monday and Tuesday, a rebound on Wednesday, and another sharp fall on Thursday. During this correction, investors hoping to change their fortunes by bottom-fishing entered with margin financing, creating the historic high record on June 18th when the Shanghai Composite closed at 4,785 points. Two months later, on August 25th, the index fell below 3,000 points and eventually broke 2,700 points in January 2016, triggering circuit breakers.

Many investors who leveraged during that bull market lost decades of wealth accumulation overnight, with some facing financial ruin.

Now, with A-share margin financing breaking historic records, what does this mean? Are market risks already high? The comparison isn't straightforward.

During the 2015 leveraging wave, on-exchange financing (compliant financing through brokerages) was only part of the picture. Off-exchange financing comprised a significant portion with even more extreme leverage ratios. In 2015, off-exchange financing was relatively unregulated, provided by P2P platforms, small loan companies, trust companies, and even some trading software. Leverage ratios were at least 1:2 or 1:3, with the most extreme reaching 1:5 and 1:10.

Estimates suggest off-exchange financing peaked at over 2 trillion yuan, possibly reaching 3 trillion yuan. In the 2015 leveraged bull market, on-exchange financing peaked at 2.27 trillion yuan, with off-exchange financing at 2-3 trillion yuan, totaling approximately 4.2-5 trillion yuan.

Currently, off-exchange financing is strictly limited, with financing primarily through on-exchange channels. The actual amount of borrowed stock trading is only about half of 2015 levels.

In June 2015, A-share market capitalization peaked near 80 trillion yuan, compared to the current 103.8 trillion yuan. Combined on-exchange and off-exchange financing then reached 4.5 trillion yuan or more, representing 5.6% of total market cap. Current financing of 2.28 trillion yuan, plus off-exchange financing of at most 2.3 trillion yuan, represents 2.2% of current market cap.

Additionally, national deposits (domestic and foreign currency) totaled 136.0 trillion yuan at end-June 2015, with total financing of approximately 4.5 trillion yuan representing about 3.3% of total deposits. Current deposits are approximately 328 trillion yuan, with financing of 2.3 trillion yuan representing only 0.7% of total deposits.

Pre-2015 crash A-share market cap of 80 trillion yuan represented 59% of national deposits, while current market cap of 103.8 trillion yuan represents about 32% of deposits.

From any perspective, current retail investor borrowing levels are not excessively high and haven't entered high-risk territory.

Margin financing balance is indeed an important indicator. Attention should be paid if it exceeds 3.5 trillion yuan, with 4 trillion yuan marking entry into medium-high risk territory. Calculations should combine on-exchange financing and off-exchange margin trading.

Regulators will continue cracking down on off-exchange financing and closing gray channels. Financing policies may tighten after the Shanghai Composite breaks 4,500 points, typically by raising brokerage margin requirements. Current common ratios are 80%, meaning 1 million yuan principal can finance 1.25 million yuan. Adjustment to 100% would mean 1 million yuan principal could finance at most 1 million yuan.

If regulators raise margin requirements, it signals they believe the market is overheating.

Current margin purchases focus on electronics, telecommunications, and computer industries, including hot semiconductor and CPO concepts. Individual stocks show Cambricon leading with 6.895 billion yuan in net margin purchases, with Neo Photonics and Shengyi Technology also showing significant margin positions.

As of September 1st, A-share margin trading individual investors numbered 7.6148 million, with a net increase of 82,500 accounts since August and 122,700 new participants in margin trading since August.

Current margin trading essentially means financing only, with very little short selling.

The accompanying chart shows monthly A-share new account openings since last year. This year's retail account opening peak occurred in February-March during the DeepSeek-driven tech stock surge. August's 2.64 million new accounts, while rebounding, didn't exceed March levels and lagged significantly behind last October.

However, institutional account openings tell a different story. During last October's peak retail opening frenzy, institutions only opened 7,000 accounts, indicating institutional skepticism that quickly ended the rally and trapped many retail investors.

August was the peak for institutional account openings at 9,900 accounts, exceeding both last October and this March. August's retail additions clearly haven't reached frenzied levels.

Based on institutional and retail account data, this rally has considerable room to run, as retail investors haven't reached frenzied levels while institutions continue entering the market.