According to a research report released by China Merchants Securities Co.,Ltd. (ASX: 600999), since late September, margin financing balances have continued to decline, leveraged funds have accelerated their exit, and significant net inflows into equity ETFs have formed an offset. Combined with improvements on the funding demand side, the supply-demand balance in market liquidity has improved marginally, though the overall market remains in a stock-game state. The current margin balance has dropped to the level of September 2025, and the TMT sector's margin balance has fallen to the level of late November 2025. The pressure from margin outflows has been partially released. The dense rollout of domestic market-stabilizing policies, coupled with the resolution of the US midterm elections, is driving a recovery in market risk appetite, and previously oversold sectors may usher in a rebound window. The main views of China Merchants Securities Co.,Ltd. (ASX: 600999) are as follows:
Margin financing outflow pressure has been released in stages, and market-stabilizing policies have been intensively introduced. Since late September, margin balances have continued to decline, with leveraged funds accelerating their exit. They have now fallen to around 2.3 trillion yuan, close to the level of early September 2025. Structurally, the TMT sector has been the main direction of margin fund deleveraging, indicating that the crowded technology holdings in margin trading have been significantly digested. Along with the market adjustment and the accelerated outflow of margin funds, the margin guarantee ratio has fallen notably from its peak. The market's average guarantee ratio has dropped from a high of about 300% during the year to around 250%. Recently, a series of market-stabilizing policies have been intensively rolled out, coordinating efforts across four dimensions: blocking cross-market liquidity risks, incentivizing industrial capital, channeling index funds into the market, and supporting trading system infrastructure. These measures are gradually breaking the previous negative feedback loop and helping to restore investor risk appetite. This week, ETF inflows accelerated further, with a net inflow of 83.526 billion yuan on November 3, becoming an important incremental source of funds for the market and helping to buffer selling pressure during the market adjustment.
Monetary policy and interest rates: Last week (10/26-10/30), the central bank made a net open market injection of 1.211 trillion yuan, and 1.749 trillion yuan of reverse repos will mature in the coming week. Money market rates rose, short-end government bond yields fell, long-end government bond yields rose, the issuance scale of interbank certificates of deposit expanded, and issuance rates were mixed. As of October 30, R007 rose 5.9bp, DR007 rose 6.9bp, the 1-year government bond yield fell 0.8bp, the 10-year government bond yield rose 1.0bp, the issuance scale of interbank certificates of deposit increased by 147.05 billion yuan, 3M/6M interbank CD rates rose, and 1M interbank CD rates fell.
Funding supply and demand: Trackable funds in the secondary market saw net inflows. Margin balances declined, with net margin selling of 87.37 billion yuan; ETFs saw net inflows of 96.24 billion yuan; and the shares of newly established equity-biased public funds increased. Major shareholders shifted from net reductions to net increases, while the scale of announced reduction plans expanded.
Market preferences: In terms of sector preferences, banks, food and beverage, and non-bank financials received relatively high net inflows from various types of funds. Broad-based index ETFs saw a mix of subscriptions and redemptions, with more subscriptions for CSI 300 ETFs and more redemptions for CSI 500 ETFs; sector ETFs also saw a mix, with more subscriptions for finance and real estate (excluding brokers) ETFs and more redemptions for information technology ETFs. The highest net subscription was for E Fund CSI 300 ETF; the highest net redemption was for Southern CSI 500 ETF.
Risk warning: Economic data and policies falling short of expectations, and overseas policy tightening exceeding expectations.