A-Share Market Faces Volatility as Shareholders Opt for Sell-Off Amidst Rece...

TMTPOST--Chinese A-shares witnessed a sudden downturn Wednesday, halting the bullish sentiment that had gripped the market for days. By midday Wednesday, more than 5,000 stocks had recorded declines. However, in stark contrast to the market's volatility, many shareholders of listed companies had already been preparing for an exit strategy, having initiated large-scale stock sell-offs even before the market's recent surge.

According to AsianFin, the wave of stock sell-offs had quietly begun during the recent broad rally in A-shares and saw a noticeable increase starting from September 23. The situation intensified further, with a spike in announcements related to stock reductions. In just one night on Monday, 90 listed companies released announcements about planned stock sales. If the figures on Sunday are included, the number jumps to 103 companies. Of these, 31 firms issued notices detailing the completion of stock sales. This suggests that at least 70 companies had been gearing up to cash out following the recent surge in stock prices.

While many shareholders opted to sell their stakes, some companies took a different approach. From Sunday to Monday, 21 companies announced plans to repurchase or increase their stakes in a bid to show confidence in their businesses.

Industry insiders note that these divergent strategies do not necessarily correlate directly with company performance but can offer some insight into shareholders' confidence in a company's long-term prospects based on how they respond to stock price fluctuations.

AsianFin further analyzed nearly 100 stock reduction announcements from Monday and found that the largest planned reduction by percentage came from Wanlian Magnetic Plastics (603150.SH). Its shareholder, Jintong Anyi, planned to reduce holdings by no more than 7.2 million shares through centralized bidding and bulk transactions, representing up to 8.42% of the company's total stock—a move that was tantamount to a near-complete liquidation of its holdings.

Other notable reductions include those from Fosun Technology (301529.SZ) and Nancheng Technology (688484.SH). Fosun Technology's shareholder, Lu Tichao, announced plans to reduce his holdings by up to 6% of the company's shares. Meanwhile, Nancheng Technology's shareholders, including Shanghai Jiadian, plan to reduce their holdings by up to 5%.

In terms of the sheer number of shares, Zhonggu Logistics (603565.SH) saw one of the largest planned reductions. Ningbo Guzhe Investment Management Partnership, a major shareholder, announced intentions to sell no more than 63 million shares via centralized bidding and bulk transactions, representing up to 3% of the company's total stock. At the current stock price of approximately 8.5 yuan per share, this sale could potentially generate about 530 million yuan in cash.

It is worth noting that many of the shares being sold were acquired before the companies' initial public offerings (IPO). For instance, Jintong Anyi's planned liquidation of Wanlian Magnetic Plastics shares was from stock it had obtained before the company went public. Another example is Chen Saimin, assistant general manager and board secretary of Hangcha Group (603298.SH), who planned to sell up to 1 million shares—approximately 0.0763% of the company’s total shares. These shares were also acquired prior to the IPO.

In addition to IPOs, stock reductions have also been linked to corporate restructuring. For instance, Tianshan Aluminum (002532.SZ) reported on Monday that its shareholder, Huaxin Zhicheng No.7, planned to reduce its holdings by 2.33 billion shares, equivalent to 0.00123% of the company's total shares, following a restructuring.

The sell-off trend isn’t limited to the mainland. Hong Kong-listed companies have also seen similar behavior. According to data from the Hong Kong Stock Exchange, on Sunday, Yan Yuqing, a shareholder of China Galaxy (06881.HK), reduced her holdings by 39.23 million H-shares, selling them at an average price of HK$10.479 per share, bringing in about HK$411 million. Her holding percentage decreased from 5.63% to 4.57%. Interestingly, China Galaxy’s stock price hit a stage high of HK$11 on Sunday, only to plummet over 32% on Monday, suggesting that the shareholder had cashed out at an ideal moment.

On the other hand, some companies have taken the opportunity to boost investor confidence by announcing stock repurchases. One of the most unique cases was Bairen Medical (688198.SH), which announced plans to repurchase shares using special loan funds. This marked the first instance in A-share history where a company planned to buy back shares using loaned funds under the People's Bank of China's (PBOC) new stock repurchase and increase loans initiative.

According to the PBOC's guidance, commercial banks are now encouraged to provide loans to listed companies and major shareholders for stock repurchases and increases, with an initial loan fund of 300 billion yuan available at a 1.75% service rate. Bairen Medical’s announcement on Sunday highlighted the company's intent to use these funds, with no upper or lower price limits set for the repurchase, allowing for flexibility based on market trends. The company's stock surged to the limit-up price of 139.18 yuan per share following the news.

Another company, Shanying International (600567.SH), adjusted its repurchase plan by raising the upper limit of its share buyback price from 1.69 yuan to 2.34 yuan and doubling its maximum buyback fund to 12 billion yuan. The company explained that the change was driven by rising stock prices and confidence in its future development, prompting it to increase the buyback scope.

A closer look at the companies involved in these buyback and sell-off moves reveals mixed financial performances. Many companies undergoing significant sell-offs, such as Yonghui Superstores (601933.SH), have posted poor financial results in recent years. Yonghui, which saw a 1.13% reduction in holdings by its largest shareholder, has reported continuous losses over the past three years. The company’s revenues fell from 91 billion yuan in 2021 to 78.6 billion yuan in 2023, and its stock price has been below 3 yuan per share for the past year, after reaching a high of 10.95 yuan in May 2020.

On the other hand, companies engaged in buybacks tend to have more positive financial outlooks. For instance, Science and Technology (688480.SH), which recently announced a buyback plan, posted a 32.68% year-over-year increase in revenue and a 216.75% rise in net profit for the first half of 2024. These companies’ actions reflect their belief in their long-term potential and an effort to maintain investor confidence amidst a volatile market.

As China's A-share market continues to evolve, the differing strategies of shareholders and companies in response to market conditions—whether selling off or buying back—offer insights into broader market sentiment and the future direction of individual stocks. Investors should pay close attention to these moves to gauge market trends and identify opportunities in both the A-share and H-share markets.