27 October 2016
Jia Yueting plans to sell 8 percent of LeTV over six months. Photo: Internet
Jia Yueting plans to sell 8 percent of LeTV over six months. Photo: Internet

Top executives sell shares amid doubts over China rally

Senior executives of listed firms in China are selling shares in their own companies at an accelerated pace, suggesting they may have doubts about whether there’s room for the stock prices to go much higher.

Last month, company insiders — senior executives or their relatives — sold a combined 1.68 billion shares, three times as many as in April and much more than in any other month so far this year, Reuters data shows.

Share sales by senior managers are sometimes taken as a worrying sign by investors, as they can indicate the people who know a company best think its stock price is too high.

“It’s a vote of confidence,” Reuters quoted Hong Hao, chief strategist at Bank of Communications International, as saying.

“It’s evidence that stock prices are high.”

Hong said, however, that he expects these sales will only slow but not stop the rise of stock prices, in what’s become a frenzied market.

Mainland China’s benchmark stock indexes have surged nearly 150 percent over the past year, beating the rest of the world’s major indexes, even as the country’s economy slows.

Shenzhen’s start-up board, ChiNext, has more than tripled in the last 12 months and is now trading at earnings multiples of 140, meaning that at the current level of profitability, investors need to wait 140 years to recoup their investments.

Some shareholders are getting impatient.

Between June 1 and June 3, Jia Yueting, founding chairman and president of Leshi Internet Information and Technology Co. (LeTV, 300104.CN), sold 35 million shares in the firm, making 2.5 billion yuan (US$402.85 million).

LeTV said May 25 that Jia plans to sell up to 148 million shares in total over the next six months, or 8 percent of the company, though he will remain the biggest shareholder after that, with a 36.85 percent holding.

The firm said Jia will lend the proceeds of the sale to the company interest free. A spokeswoman declined to say whether the selling was inspired by a view that share prices are too high.

It’s not just company managers who are selling; major cornerstone investors, freed from mandated lock-up periods, are also reducing their stakes.

Cornerstone stakeholders slashed 109 billion yuan worth of China-listed shares last month, double the amount sold in April, the report said, citing data from Southwest Securities.

A similar trend was captured by an index compiled by Shenwan Hongyuan Securities that tracks major shareholders’ trading activities.

The index surged over the past month to a record high, meaning major shareholders are reducing holdings at unprecedented levels.

“It a barometer of how people in the real economy view stock valuations,” Liu Junwei, an analyst at Shenwan Hongyuan was quoted as saying.

“It means at the current level, a correction is very likely.”

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