China Insiders Sell Most Shares in May in 4 Years, UBS Says

China Insiders Sell Most Shares in May in 4 Years, UBS Says

Major shareholders, senior management and individuals with stakes of more than 5 percent sold a net 24.7 billion yuan ($4 billion) of Chinese A shares in May, the most for a month since June 2009, UBS AG said.

The biggest sales were in computer-related shares, media and “special equipment” sectors, UBS strategists including Qin Xia wrote in a report dated today. Net stakes rose only in chemical raw materials and telecom operations, while the sell-off in smaller companies as a percentage of the free-float reached new post-2008 highs, they wrote.

Insiders sold as the Shanghai Composite Index climbed 5.6 percent in May, the biggest advance since December, and as more locked-up shares became tradable. The benchmark index has slumped 6.5 percent in June as data from exports to industrial production pointed to slowing growth and higher money-market rates signaled tighter liquidity.“Substantial shareholders are having an increasingly important impact on share prices,” the analysts wrote. “The purchase or sell-down of stocks of a particular listed company reflects the genuine views of its substantial shareholders on its pricing, and also constitutes a major leading indicator for its market performance.”

World’s Worst

The Shanghai Composite added 0.3 percent at 2,155.90 at 2:30 p.m. local time, after touching its lowest level in almost six months last week. The index has lost 25 percent in the past four years, the most among the world’s 10 biggest stock markets, according to data compiled by Bloomberg. The MSCI All-Country World Index has rallied 34 percent in that time.

The Shanghai gauge trades at 11.7 times reported earnings, compared with an average of 16.6 over the past five years. The ChiNext index of smaller, Shenzhen-listed companies is little changed this month after surging 21 percent in May.

Confidence is fading in an economic rebound for China this quarter, with investment banks from Morgan Stanley to Barclays Plc cutting their 2013 expansion forecasts. The economy grew 7.7 percent in the first quarter, less than the 8 percent median forecast in a Bloomberg News survey.

At the same time, slowing inflows are spurring the nation’s worst cash crunch in at least seven years. A measure of capital inflows fell to a six-month low in May, aggravated by a government crackdown on hot money, a worsening growth outlook and signs the Federal Reserve plans to rein in the supply of dollars.

“We believe the market is subject to medium-term downside risks if destocking continues, domestic investment growth decelerates, and there is a lack of initiatives on the policy front,” the UBS analysts wrote.

— Editors: Richard Frost, Darren Boey

To contact the reporter on this story: Anuchit Nguyen in Bangkok at anguyen@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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