Shareholders pare stakes to make hay

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Even as the Chinese A-share market heads toward a bullish phase, it is witnessing a wave of stake reductions by companies' major shareholders, including management members and other shareholders liable for information disclosure.

Data from Shanghai-based market tracker Wind Info showed major shareholders of 805 A-share companies reduced their stakes by selling shares worth over 51.2 billion yuan ($7.6 billion) by March 11.

Major shareholders of companies in computer, telecommunication and electric equipment sectors pared their stakes the most over the past few months. Some 116 companies saw their major shareholders reduce their stakes.

Next were software and information services with 84 companies announcing stake reductions. In the pharmaceutical industry, 48 companies saw their major shareholders cut their stakes.

Shenzhen-based Sunway Communication registered the largest stake reduction in terms of reduced market value.

The company announced in mid-February that its employee stock ownership plan was due on Feb 13 and all the 44.55 million shares were sold out. With that, the company's market value was estimated to have shrunk by 1.47 billion yuan.

But such share sales have not dented market confidence. Among the 118 companies whose market value contracted by at least 100 million yuan due to shareholders' stake reductions, 28 have seen their share prices rise by over 30 percent so far.

Another 14 of them reported a price hike of 40 percent and seven saw their prices surge over 50 percent.

Even Sunway Communication saw its share price rise more than 20 percent since it announced the stake reduction.

Jiang Qijia, a senior analyst at financial services provider Noah Holdings, said stake reductions so far this year are at a medium level, compared with past experiences. The reductions do not necessarily indicate a negative outlook of shareholders.

"Whether the market is bullish or bearish, major shareholders constantly reduce their stakes. Companies' management pressure has changed little so far while stock prices have reached a reasonable level. It is a good time for shareholders to pare their stakes now," Jiang said.

This year, the benchmark Shanghai Composite Index has risen 24 percent so far and also regained the 3000 mark.

Hong Hao, chief strategist at Bank of Communications International Holdings, wrote in a report that only strategic investors have reduced their stakes in the A shares lately.

All the other major market players have continued to invest in the A-share market. There will be some fluctuations in the short term, with some speculators expected to book profits.

But in the long run, short-term investors will make way for long-term players, which will restore stability to the market, he said.

Li Lifeng, chief strategist at Sinolink Securities, said a large number of shareholders are still experiencing shortage of capital. Given that share prices have surged in the past few months, shareholders have an opportunity to sell their stakes now, he said.

"The A-share market has been giving off stronger signals of a pickup since the fourth quarter of last year. So, a number of companies held up their stake reduction plans last year and adopted them in the past few months," he said.

But Yang Delong, chief economist at Shenzhen-based First Seafront Fund, warned investors against emulating shareholders who may have cut their stakes at one go. It would be in their own interest for small investors not to seek some precise timing to reduce their stakes, he said.

"The A-share market needs to perfect the legal protection systems for retail investors. Only in this way the market confidence can be consolidated and long-term prosperity assured," he said.

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