Since the beginning of this year, the A-share market has shown a strong performance with all three major indices collectively surging. However, it has also experienced a wave of shareholder “reductions”, with the total reduction amount reaching 19 billion yuan (RMB) in September. The A-share market’s rise alongside a reduction trend among shareholders reveals a complex contrast behind the scenes.
According to reports from Sina Finance and Caixin, the A-share market has seen a collective surge in all three major indices this year, with many individual stock prices soaring to historic highs.
Despite the strong performance of the A-share market, it has faced a wave of shareholder reductions. Wind data shows that as of the close of trading on September 10th, more than 400 listed companies have released announcements of completed important shareholder reductions, involving over 600 shareholders and a total reduction of approximately 1 billion shares, totaling 19 billion yuan.
Statistics show that in the first 6 trading days of September, nearly 130 A-share listed companies have issued pre-disclosure announcements for shareholder reduction plans, which is more than double the number from the same period last year, impacting market confidence.
The companies involved in the reduction announcements include over 400 listed companies, spanning industries such as advanced manufacturing, including automotive parts suppliers, as well as the technology, media, and communication industries, involving companies with core businesses in artificial intelligence and big data, among others.
The reasons and motivations for the reductions disclosed in the announcements vary among shareholders. The primary reason for most companies’ reductions is their own capital needs.
Analysts believe that the stark contrast between market optimism for the medium-term outlook and the intensified shareholder reductions may stem from some shareholders choosing to reduce their shares due to liquidity needs, such as enterprises requiring working capital and individual shareholders adjusting their financial arrangements. On the other hand, some shareholders may choose to cash out at high prices based on their assessment that the current stock price has reached or exceeded its intrinsic value.
Furthermore, policy changes and market sentiment fluctuations could also be important factors driving shareholder reductions.
Regarding the impact of large-scale shareholder reductions on the market, some scholars analyze on Chinese social media platform Zhihu that the behavior of major shareholders reducing their holdings can have a complex and varied impact on the market. The act of major shareholders reducing their holdings may signal a lack of confidence in the company’s future development, affecting market investors’ confidence and expectations, leading to a drop in stock prices. If the company’s fundamentals are weak and the future outlook is bleak, major shareholder reductions may exacerbate negative market expectations.
However, in certain special circumstances, major shareholder reductions may have positive effects. For example, if major shareholders reduce their holdings to bring in strategic investors and market expectations are positive, it may also have a beneficial impact on stock prices.
According to a report from Central News Agency on September 11th, behind the wave of reductions among more Chinese listed companies reflects the disconnect between weak revenue growth and rising stock prices. For example, for Star Solar, a cross-border new energy company, its stock price has surged by over 30% this year, but its 2024 revenue and net profit have both dropped by nearly 30%. Despite the seemingly improved performance in the first half of this year, the gross profit margin for its solar module business is only 5.92%, and its traditional core business of household appliance components continues to shrink. Such stock price increases lacking strong fundamental support often trigger shareholder reductions.