China stock market

September insider sales data gives China market temporary relief

A-share holdings by 100 major shareholders shrank by 21 billion yuan, 25 per cent less than in August

PUBLISHED : Sunday, 02 October, 2016, 4:53pm
UPDATED : Sunday, 02 October, 2016, 10:52pm

Chinese insider transactions slowed in September from the previous month, giving a temporary relief to stock investors on the mainland who’d been nervous about a major sell-off.

The A-share holdings of 100 major shareholders shrank to 21 billion yuan (US$3.15 billion) in September, 7 billion yuan less than in August, according to data by state-run Securities Times newspaper.

The smaller-than-expected sales data is giving skittish investors cause for pause, easing their concern that insiders may be preparing to dump their holdings to cash out.

China’s retail investors tend to look to stock purchases or sales by insiders -- substantial owners, company founders, management and large institutions who are believed to be in the know -- for clues of the market’s direction.

Shanghai-listed Epoxy Base Electronic Material was one such indicator. Its major owners pared their holdings 10 times in September, selling 30.7 million shares to rake in 200 million yuan. The stock’s price fell 3.8 per cent in the same period.

“The sluggish market performance was the result of a lack of fresh funds and confidence, not massive selling from the large shareholders,” said Haitong Securities analyst Zhang Qi. “On the mainland, the stock market would become something akin to a pool of stagnant water without fund inflows.”

Shanghai’s A-share index fell 2.6 per cent in September to 3,004.7 at the Friday close, hovering near a psychological 3,000-point watershed between the boom and bust cycles of the Chinese stock market.

The benchmark index dipped below the 3,000 level early last week, raising speculations among investors who’re already nervous about a combination of slower Chinese economic growth and an impending US interest rates increase that insiders could be preparing a major sell-off.

“The outlook is pessimistic,” said Zhou Ling, a hedge fund manager at Shiva Investment. “Liquidity seems to have dried up and nothing could stem the capital outflow because retail investors still choose to cash out at this moment.”

That speculation never came to pass, as Securities Times’ data showed.

China’s securities regulator has been trying to stabilise Asia’s largest capital market since June last year, slowing down the approval process for companies seeking to raise funds through initial public offers, and putting on hold plans to liberalise the market, in order to shore up confidence.

A stable stock market is vital for China’s leadership and the country’s economy, amid concern that millions of shareholders in hock could spill over into social strife, while making it difficult for cash-starved companies to raise funds.

The main gauge is now more than 40 per cent off the June 12, 2015 level of 5,166.35 on June 12, 2015 when a market rout began, wiping out more than US$5 trillion in market capitalisation in two months.

Another round of hefty drops on the A-share market would likely prompt regulators to take drastic actions to put a floor under plummeting stock prices.

That expectation gives some investors hope.

“Stock investors are hoping for a turnaround after getting stuck with paper losses for more than a year,” said a retail investor Dong Yanjun. “We are fidgety about any negative news that could affect the market movement.”