Big shareholder stock sales plummet after new rules

Updated 2017-06-05 09:32:06 Xinhua

Stock sales by Chinese major shareholders shrank sharply over the past several trading days, pointing to the effect of tightened rules aimed at limiting massive dumping of holdings and bolstering the market.

SALES DECLINE

The average daily stock sales volume by major shareholders, supervisors and management at the Shanghai Stock Exchange fell to 190 million yuan (about 28 million U.S. dollars) on the secondary market to retail investors during the three trading days ending Friday, down 67 percent from the daily average over the period from Jan 1 to May 26, the last trading day before the new rules were released, according to the latest data from the bourse.

No major shareholders, supervisors or management sold shares in blocks over the past three trading days, and the initial effects of the rules to curb disorderly stock sales had emerged, the bourse said in a statement.

Massive stock selling by major shareholders when share prices peak is widely deemed a factor weighing on the market. Big shareholders, supervisors and management at 278 listed companies at the Shanghai Stock Exchange have sold shares worth around 90 billion yuan so far this year, according to data from the bourse.

In the same period, the benchmark Shanghai Composite Index edged down to 3,105.54 points on Friday from 3,135.92 points on January 3, the first trading day of this year.

Compared with individuals, major shareholders, supervisors and management have the advantage of asymmetric information, so offloading stocks in a fire sale manner causes retail investors to suffer.

To ease market worries, China tightened its grip on speculative stock-selling by big shareholders, with the China Securities Regulatory Commission (CSRC), Shanghai and Shenzhen bourses last weekend coming up with new regulations to fix some loopholes in the previous scheme.

To illustrate, stocks transferred through block trading should not surpass 2 percent of a company's total shares in any 90 days, and the transferees are not permitted to sell any more within six months, according to the new rules.

Block trading in which major shareholders sell stocks to institutional investors has been a main method for major shareholders in China to reduce their holdings. Some major shareholders have used it to circumvent regulations, as they sell stocks to institutional investors in blocks and then the institutional investors flood the stocks onto the market.

The average daily stock sales volume by major shareholders, supervisors and management at the Shenzhen Stock Exchange through block trading and the secondary market dipped to 1.36 billion yuan over the three trading days ending Friday, down 54 percent from the daily average from the 10 trading days before the new rules came into existence, according to data from the bourse.

"The new rules will slow the pace of offloading, which will stabilize the market and support growth of companies with stable profitability outlooks," said Sun Xiwei, chief investment strategist at CITIC Securities.

VALUE INVESTMENT

During a Sunday industry training event on the new rules, the CSRC said that the stock reduction system is of fundamental importance to the market, and the new rules strive to improve the quality of listed companies and foster an investment mentality focused on the long-term intrinsic value of businesses.

The new rules will make the financial market provide better services to the real economy and protect the interests of individual investors, the CSRC said in a statement.

The new regulations accurately target industry malpractice and will curb speculation, said Jin Haitao, a veteran investor.

"They can help shift some investors' attention from short-term capital gains to the long-term investment value in sustainable businesses," Jin said.

The view was echoed by Zhang Zhizhou, general manager at DH Fund Management, who said that the new policies can help channel limited capital into companies that stress becoming industry leaders, so the stock market can play a better role in allocating market resources.

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