In China, four days of forced deleveraging wiped out leveraged bets, with memory chip stocks at the center of the drop. Kobeissi flags a fast-moving deleveraging story out of China, meaning investors rapidly paying down borrowed money: margin debt on the Shanghai and Shenzhen exchanges fell 2.8% on Friday, or $11.7 billion, to $405 billion, the largest single-day drop since January 2016. That marks a fourth straight daily decline, wiping out $36.9 billion in leveraged bets over the week. The trigger was a sharp selloff in memory chip stocks, which had drawn the heaviest margin borrowing of any sector during this year's AI-driven rally. The Star 50 index, China's tech benchmark, plunged 7.1% on Friday, its second-worst day of the year, while the broader CSI 300 fell 3.6%. Once chip stocks cracked, margin calls forced leveraged investors to sell, and that selling accelerated the broader market's slide, a classic feedback loop where borrowed money amplifies both the rally and the reversal. It's a reminder that much of this year's memory and AI-chip supercycle enthusiasm, in China as much as in Korea or the US, has been financed with leverage rather than cash, and that leverage cuts both ways. For a market that's been pricing HBM (high-bandwidth memory) and NAND names for years of shortage-driven pricing power, a deleveraging shock is a live test of how much of the rally was real demand versus borrowed conviction.
Why it matters · Leverage that inflated the AI chip trade in China can unwind just as fast, and margin calls don't care about your investment thesis.
Worth asking · A healthy shakeout of excess leverage, or the first crack in this year's AI chip supercycle story?