(Yicai Global) Oct. 24 -- China has broadened the scope of margin trading, which is the practice of borrowing money from brokerages to buy securities, to include 37.5 percent more stocks on the Shanghai and Shenzhen bourses to bolster a sluggish stock market.

The number of stocks eligible for margin trading on the Shanghai stock exchange’s main board has been increased to 1,000 from 800, effective from today, the Shanghai bourse said on Oct. 21

And the number of stocks that qualify on the Shenzhen bourse has been expanded to 1,200 from 800, the Shenzhen stock exchange said. Newly listed firms on Shenzhen’s Nasdaq-style ChiNext board that use the quicker registration-based initial public offering system can also now be included in margin trades on their first day of going public.

The move will attract more funds, boost market vitality, raise liquidity and make the pricing of stocks more efficient, the two stock markets said. By leveraging funds to buy stocks, investors gain more capital to invest and there is greater potential for profit. The stocks act as collateral for the loan.

The look-to-buy rate, turnover rate and activity of new stocks included in margin trading will rise, which will have a positive impact on their valuation, The Paper reported today, citing Fu Lichun, chief economist at Yti Capital.

This is the seventh time that China has widened the scope of margin trading since the mechanism was first tried out in 2010.

This round of expansion targets small cap stocks from a wider array of industries, Western Securities said in a report. Over 70 percent of the newly added Shenzhen stocks have a market capitalization of under CNY10 billion (USD1.4 billion) and nearly 60 percent of them are in emerging fields such as advanced manufacturing, the digital economy as well as green and low-carbon fields.

While the newly added Shanghai stocks are all on the CSI 300 Index, or the top 300 stocks traded, 98 percent are on the small-cap CSI 500 Index and 86 percent on the small-cap CSI 1000 Index, the brokerage said.

Editor: Kim Taylor