Sinolink Securities has raised its margin deposit ratio for new financing contracts from 80% to 100%. This makes it the first broker in China to change its requirements during the ongoing market upswing. This decision comes as mutual funds start reducing new orders after recent big gains. Chinese stocks have gained over $1 trillion in value this past month, with the Shanghai Composite reaching a ten-year high.

Market Performance and Economic Concerns

The CSI 300 index has increased by more than 20%. However, weak economic data is making some investors cautious. The rise of the margin deposit ratio to 100% shows that at least one major broker believes the current market rally is too high and supported by excessive borrowing. The fact that mutual funds are limiting new orders further suggests that the phase of “easy money” might be ending. The gap between the market’s strong performance and the sluggish economy is widening. The CSI 300 index has surged over 20% in just a month, but data from July 2025 indicates that industrial production only grew by 3.5%, which was below expectations. This mismatch implies that the rally may be driven more by investor sentiment than by solid economic fundamentals, raising the chances of a significant market correction.

Risk Management Strategies

This situation indicates an impending increase in market volatility. The CBOE China ETF Volatility Index (VXFXI) has already risen by 15% this past week, moving away from its recent lows as traders factor in more risk. Hence, now is the time to think about buying protection, like purchasing put options on broad market ETFs such as the iShares FTSE A50 China Index ETF. This scenario mirrors what happened before the market correction in mid-2015, when a rapid, leverage-driven rally detached from economic reality before a big pullback. We should use that past experience to guide our risk management in the current market. Considering these signals, we should focus on strategies that could benefit from a market pullback or slowdown. Buying out-of-the-money puts on the CSI 300 index can be a cost-effective way to hedge long positions. Alternatively, initiating bear call spreads allows us to profit from a sideways or downward movement while managing defined risk. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now