End of lock-up period to unleash US$722 billion worth of Chinese stocks next year, the most since 2011

Gauge tracking the Star market fell 8.2 per cent in the three trading days after its one-year anniversary in July, when company insiders took their first chance to sell

Companies in electronics, medicine and biotechnology, and brokerage industries face the highest value of unlocks next year, according to CICC

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Chinese companies have raised US$67 billion from A-share IPOs this year, with most of it from the Star Market. Photo: AP Photo

Published: 12:48pm, 9 Dec 2020Updated: 12:47pm, 9 Dec 2020

More than US$722 billion worth of Chinese stocks will be unlocked for sale next year, testing a market where valuations are at a five-year high.

That would be the largest amount since at least 2011, according to China Merchants Securities. It’s also equivalent to about 7 per cent of the value of the entire Chinese equity market, data compiled by Bloomberg show.

From initial public offerings to additional placements, China’s cash-hungry companies have been encouraged by Beijing to raise funds by selling new shares. There has also been a rush of additional sales by firms looking to avoid the turmoil in the nation’s debt market. As a result, the number of restricted shares held by major shareholders, senior executives and early investors is swelling, driven by Beijing’s market reforms and looser regulations.

“More companies are going to issue shares to raise funds, especially after the rising default problems in the credit market,” said Capital Securities analyst Amy Lin. “That means more restricted shares being unlocked in the future, which will be an issue affecting the market for a long time.”

China’s cash-hungry companies have been encouraged by Beijing to raise funds by selling new shares on the mainland’s stock exchanges. Photo: AFP

In China, restricted stocks usually have a lock-up period of anything between six months and three years after the date of listing. And when unleashed for company insiders to sell, the rest of the market can feel the impact. A gauge tracking the Star market fell 8.2 per cent in the three trading days after its one-year anniversary in July, when company insiders took their first chance to sell. That dragged the country’s benchmark CSI 300 Index down by 4 per cent during the same period.