Sell-down sends warning signal

PUBLISHED : Saturday, 04 September, 2010, 12:00am
UPDATED : Saturday, 04 September, 2010, 12:00am

A number of major shareholders have heavily sold down their stakes in mainland-listed companies on earnings concerns, fuelling fears that the A-share market would dip further this year.

Despite this bearish sentiment, an increasing number of novice retail investors rushed to open new brokerage accounts as they anticipated a strong rebound on a market that lost 19 per cent this year.

According to exchange filings, several major shareholders of Hunan Friendship and Apollo Commercial, a Shenzhen-listed retailer, sold nearly 50 million shares to rake in about 1 billion yuan (HK$1.14 billion) since July 20.

The transactions were conducted through the block trade system where wholesale deals are made through private negotiations.

The company was not alone. Other companies such as Jilin Pharmaceutical also saw major owners cash out through the block trade mechanism.

'It is unusual that several major shareholders would be anxious to sell massive holdings at this kind of pace,' Essence Securities analyst Liu Jun said. 'Aggressive sell-downs by major shareholders normally bode ill for the market outlook.'

The Shanghai Composite Index stayed flat yesterday, closing at 2,655.394 points, down 0.01 per cent from Thursday. The benchmark, one of the world's worst-performing indicators this year, jumped 80 per cent last year.

Thousands of retail investors were convinced that the A-share market would rebound soon following a sharp fall early this year.

According to China Securities Depository and Clearing, retail investors opened 265,200 new accounts at the Shanghai and Shenzhen stock exchanges last week. The increasing number of new accounts showed that small investors were intending to hunt bargains on the market.

'The bear run this year didn't affect our business badly,' West China Securities trader Wei Wei said. 'Many new investors are interested in playing stocks now.'

The total number of accounts at the two mainland exchanges hit 146.7 million last week. But analysts predicted more powerful shareholders would cash out in the coming months amid uncertainty over the economy.

Mainland-listed companies posted a 41 per cent profit jump for the first half of this year against a 27 per cent drop in the benchmark.

The listed firms are set to show slower earnings growth in the second half because of the end of Beijing's stimulus package.

'It's advisable for retail investors to remain cautious about the market outlook,' Shenyin Wanguo Securities analyst Wei Daoke said. 'Chances are slim for investors to make profits on the current market.'

According to Wind Information, a total of 383 billion formerly locked-up shares would become free-floating this year. The shares were valued at 5.5 trillion yuan at the beginning of this year.