China's Stock Traders Slash Leveraged Bets 14% as Tech Sell-off Deepens

China's stock traders cut leveraged bets by 14% in July, with margin debt falling to 2.59 trillion yuan ($383.4 billion) from a record 3.01 trillion yuan on June 25, according to Wind data. The unwind hit technology boards hardest, with the STAR 50 Index dropping roughly 30% from its early-July peak, and chip stocks like Cambricon and Zhongji Innolight saw heavy selling. The deleveraging complicates Beijing's efforts to support tech stocks, as regulators in South Korea also tightened margin requirements on leveraged ETFs.

China's stock traders slashed leveraged bets by 14% in July, and the retreat is hitting Beijing's tech rally hardest. The math is stark. Chinese traders have been unwinding leveraged stock bets for a month straight, and it's landed squarely on the technology boards Beijing has spent all year trying to prop up. The outstanding value of shares bought with borrowed money fell to 2.59 trillion yuan, or $383.4 billion, on Friday. That's down 14% from the record 3.01 trillion yuan logged on June 25, according to data from Wind, the Shanghai-based financial data provider. Three weeks ago, traders were piling in on credit. Now they can't get out fast enough. The unwind is concentrated on the Shanghai and Shenzhen exchanges' technology boards, the STAR Market and ChiNext, where margin buying had powered much of this year's rally. The STAR 50 Index, the benchmark for China's chip and AI-hardware names, tumbled from an early-July peak of 2,255.25 to 1,588.4, a drop of roughly 30%, according to reporting from Caixin Global and BigGo Finance. On July 17 alone, the index fell more than 7% in a single session. That's the kind of move margin traders can't sit through. When a leveraged position drops 7% in a day, the broker calls, and the selling feeds on itself. Chip stocks bore the brunt. Cambricon, the Shanghai-listed AI chip designer that briefly ranked among China's most expensive stocks by any conventional multiple, and Zhongji Innolight, the optical transceiver maker that rode the AI infrastructure boom higher than almost anyone, both saw heavy selling as leveraged holders cut exposure. The electronics sector alone recorded net margin outflows of more than 120 billion yuan, or roughly $17.8 billion, as traders who'd bet the AI trade still had room to run decided it didn't. This wasn't purely a China story. Global AI-linked stocks wobbled through late July as investors reassessed how much further the infrastructure trade could run, and Chinese chip names, priced for years of uninterrupted growth, had further to fall than most. Regulators added fuel of their own. South Korea's Financial Services Commission announced on July 16 it would raise minimum margin requirements on single-stock leveraged ETFs from roughly 10 million won to 30 million won, about $6,745 to $20,234, tightening the same kind of leveraged retail trading that had inflated Chinese tech boards too. The Shanghai Composite, which had traded above 4,100 in early July, broke below 3,800 by July 17. Beijing's floor is looking shaky Beijing has spent much of 2026 trying to keep retail money flowing into tech stocks, leaning on state fund purchases and rhetoric nudging households toward equities and away from property. A margin unwind at this pace complicates that project. The pace of contraction in Shanghai and Shenzhen margin debt was the fastest since January 2016, according to Bloomberg's reporting on the broader deleveraging, when a similar leverage-driven crash forced regulators to trigger circuit breakers that ended up deepening the panic rather than stopping it. Nobody is calling for circuit breakers this time. But the People's Bank of China still drained more than 1.16 trillion yuan through liquidity operations even as the sell-off ran. Policymakers have plenty else on their plate besides the stock market. Retail investors are the ones actually exposed here. Margin trading lets an investor borrow against existing holdings to buy more stock, amplifying gains on the way up and losses on the way down. China's retail investors, who account for a larger share of trading volume than in most developed markets, embraced that leverage aggressively this year as the AI trade turned STAR board darlings into some of the most heavily traded names on either exchange. Frankly, a 14% deleveraging in five weeks is not a rounding error. It's the market's own risk appetite draining out in real time, in the exact sector Beijing was counting on to carry the rally into next year. Whether the retreat stabilizes near 2.59 trillion yuan or keeps sliding toward 2016-era lows will say more about the durability of China's AI stock boom than any state fund purchase can. Also read: Palantir posts 93% revenue growth then its CEO calls AI labs Marxist https://startupfortune.com/palantir-posts-93-revenue-growth-then-its-ceo-calls-ai-labs-marxist/ • Palantir Stock Soars After Revenue Jumps 93% on AI Demand https://startupfortune.com/palantir-stock-soars-after-revenue-jumps-93-on-ai-demand/ • BlackRock Launches Two Tokenized Funds to Own the Stablecoin Reserve Business https://startupfortune.com/blackrock-launches-two-tokenized-funds-to-own-the-stablecoin-reserve-business/