Between September 24 and October 11, a total of 172 Chinese A-share listed companies issued announcements of reducing holdings. Major shareholders of these listed companies taking advantage of the stock market rally to cash out triggered dissatisfaction among investors. A mainland scholar warned that even with the bull market, it’s still challenging for small retail investors to make profits.
Amid the recent significant fluctuations and rising trend in the Chinese stock market, many listed companies have issued announcements of reducing holdings. According to the Daily Economic News on October 12, during the period from September 24 to October 11, a total of 172 listed companies issued reduction announcements, with two companies planning to reduce holdings by more than 8% of their shares: Changqing Technology and Wanlang Magnetic Plastics. Among them, Changqing Technology stated in its announcement on September 27 that including several shareholders holding over 5% of the company’s shares, they would reduce shares not exceeding 8.91% of the total share capital in a period of 90 consecutive natural days starting 15 trading days after the disclosure date.
Furthermore, Wanlang Magnetic Plastics announced on October 9 that its shareholder Anhui Gaoxin Jintong Anyi Phase II Venture Capital Investment Fund (Limited Partnership) would reduce shares not exceeding 8.42% of the total share capital from October 30, 2024, to January 29, 2025.
In addition, companies like Dingsheng New Materials, Haikan Shares, Fusai Technology, Zhuoyi Information, and Mingpu Optoelectronics, among others, had the total planned reduction exceeding 5%. There were 46 companies with planned reductions above 3% (including 3%).
Analyzing the shareholders reducing holdings, those holding over 5% of the shares were the most numerous, totaling 99, accounting for about 35% of the total shareholders involved in the reduction. Following them were executive shareholders with 80, making up around 28% of the total shareholders reducing holdings. The number of controlling shareholders or actual controllers reducing holdings was 27, about 9% of the total shareholders, with the remaining categorized as other shareholders, totaling 80.
Looking at the industries involved in reductions, companies from 27 different sectors issued reduction announcements between September 24 and October 10. The top five sectors in terms of the number of stock reductions were electronics (30 companies), power equipment (17 companies), computers (15 companies), machinery equipment (13 companies), and biopharmaceuticals (11 companies).
Apart from major shareholders of listed companies significantly reducing their holdings, main funds are also exiting on a large scale. According to Wind data service, on one day alone, the net outflow of main funds from the Shanghai and Shenzhen stock markets totaled 169.815 billion yuan. Specifically, the ChiNext Board saw a net outflow of 45.182 billion yuan, while the net outflow of main funds from the Shanghai and Shenzhen 300 index was 55.736 billion yuan. Furthermore, on the 8th, 404 stocks had a net outflow of main funds exceeding 100 million yuan, with Eastern Fortune, Wuliangye, and Chang’an Automobile ranking in the top three with net outflows exceeding 20 billion yuan. Companies like Vanke A, China Yangtze Power, Guizhou Maotai, and Hikvision also had net outflows of over 10 billion yuan.
Regarding shareholders reducing holdings, the netizen “Lao Da” stated, “I am a small retail investor, not opposing shareholders reducing holdings, but it should not be done in violation of regulations.”
“ying” believed, “Investors want to make money, while bosses want to sell the company.”
“Cheung” commented, “Retail investors…being hit again.”
Chinese scholar Wang Mingyuan cautioned retail investors that it’s very challenging for them to make money in the Chinese stock market.
In an article titled “Even with the Bull Market, It’s Still Difficult for Small Retail Investors to Make Money” on September 9, Wang Mingyuan pointed out that according to statistics released by the Shanghai Stock Exchange from 2007 to the end of 2022, out of the 46.38 million stock accounts in mainland China, only 12,490 belonged to institutional investors, while individual investors accounted for a staggering 99.73%. Among individual investors, nearly 90% were small retail investors with capital not exceeding 1 million yuan, with over 23.05 million accounts having capital below 100,000 yuan, making up nearly half.
Despite small retail investors contributing to the majority of A-share transactions, they only receive a minimal share of profits. Using the 2017 data from the Shanghai Stock Exchange’s last release on the profitability of various investor types as an example, individual investors contributed 82.01% of the trading volume but received less than 9% of the profits. In contrast, institutional investors accounted for less than 18% of the trading volume but received over 91% of the profits. During the bull market from the end of 2014 to June 2015, only 0.5% of top retail investors and institutional investors took away the money of more than 97.5% of small retail investors.
The article pointed out that the “investment carnival” of early retail investors in the bull market was just a “costly warm-up act,” ultimately benefiting the “big players watching the changes.”
The article emphasized that the bull market is when small retail investors suffer the most significant wealth loss, becoming a crucial channel for the transfer of wealth in the securities market. Using the example of the bull market and bear market (2015 stock market crash) in 2015, retail investors with assets above 10 million yuan saw a 76% increase in their assets, while those with assets below 300,000 yuan experienced a 33% decrease. Furthermore, from the end of 2022 to the middle of this year, it’s estimated that individual investors in A-shares lost around 4 trillion yuan in investment, averaging about 100,000 yuan per household.
The article concluded by stating that retail investors are increasingly in a position of “running for others.” These extensive data serve as a reminder to investors: the more bullish the market, the more cautious small retail investors should be because “although the prosperity appears before your eyes, over 90% of it does not belong to you, but is likely a channel for wealth loss.”
Under the leadership of the Communist Party, the A-shares have been continuously rising since September 24, with the Shanghai Composite Index soaring nearly 20% over five trading days. On September 30, the trading volume in both Shanghai and Shenzhen exceeded 2.59 trillion yuan, setting a new historical record.
However, the good times were short-lived. Following the National Day holiday, on October 8, when the A-shares market reopened, there was an initial rise, but on the 9th, A-shares experienced a significant drop with the Shanghai index plummeting nearly 7% at one point, closing down by 6.62% and dropping below 3300 points, marking the largest single-day decline since February 2020. The Shenzhen Component Index fell by 8.15%, and the ChiNext Index dropped by 10.59%, while the CSI 50 Index tumbled by 12.11%, achieving the largest single-day decline in history.
On the 11th, A-shares once again witnessed a general decline as all three major indices opened lower and continued to slide in the afternoon, with the Shanghai index dropping over 2.5% and briefly falling below the 3200-point mark, and the ChiNext Index dropping by over 5.5% at one point. By the closing bell, the Shanghai index stood at 3217 points, down by 2.55%; the Shenzhen Component Index closed at 10,060 points, down by 3.92%; the ChiNext Index closed at 2100 points, marking a 5.06% decline; and the STAR 50 Index dropped by 5.79%, finishing at 898.9 points. The total trading volume of both markets reached 1.57 trillion yuan, a decrease of 571 billion yuan compared to the previous trading day.