A large number of non-tradable State shares can be converted into tradable equities this month, a move analysts say may trigger stock market volatility.
Around 9.16 billion non-tradable shares from 119 listed companies with a total market value of 84.3 billion yuan can be publicly traded in April, double the number released in March, according to Shanghai Gildata Service Co Ltd, a financial information provider.
Analysts warned that investors should remain cautious on the large-scale unlocking of non-tradable shares, especially as the mainland stock market has hit a psychological high point.
"The large-scale release of non-tradable shares will trigger fluctuation of equity prices, because the market will need time to absorb the large supply of scrips," said Zhang Yidong, an analyst at Industrial Securities.
Up to March, only about 1.1 billion non-tradable shares from 84 listed companies were unlocked under the nationwide stock reform of May 2006. "The unlocking could be a factor leading to stock price volatility, but it will not influence the mainland stock market fundamentals, underlined by plentiful liquidity and rising corporate profits," said Chen Wenzhao, an analyst at Changjiang Securities.
The number of unlocked non-tradable shares from minority shareholders those who own less than 5 percent of a company's total issued capital will largely increase in April. There will be a total of 113 companies with 4.2 billion non-tradable shares held by minority shareholders to be unlocked in April, up 127 percent from March.
According to statistics compiled by the China Securities Journal, 42 companies sold 384 million shares in March, of which 67 million shares were sold by majority shareholders. The average sale of non-tradable shares by majority shareholders accounted for 4.38 percent of their original holdings.
"It is more likely for majority shareholders to make a quick profit when the stock price surges to new heights," said Zhang.
The average unlocking price from majority shareholders was 13.09 yuan apiece in March, higher than that of minority shareholders at 10.76 yuan per share, according to Gildata.
Based on information provided by listed companies, most non-tradable shares 5.9 billion shares worth 19.8 billion yuan, or 64 percent of the total will be unlocked in the middle of this month. And 1.9 billion shares worth 16.7 billion yuan will be unlocked at the beginning of the month, with 1.3 billion shares worth 17.7 billion yuan released at the end of April.
(China Daily April 5, 2007)