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Market cheers new regulation on stake cuts

Mavens say measures will bring more stability, protect investor interests

By SHI JING in Shanghai | China Daily | Updated: 2024-05-28 09:12
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An investor checks stock prices at a brokerage in Shenyang, capital of Liaoning province. [Photo provided to China Daily]

China's stock market on Monday gave the thumbs up to Friday's new regulation comprising 31 measures to streamline major shareholders' reductions in their equity holdings, with the benchmark Shanghai Composite Index gaining 1.14 percent to close at 3124.04 points.

The Shenzhen Component Index and technology-focused ChiNext in Shenzhen, Guangdong province, added 0.88 percent and 0.68 percent, respectively. Market mavens said the new regulation is expected to bring more stability to the A-share market.

On Friday, the China Securities Regulatory Commission, the country's top securities watchdog, promulgated the new regulation with immediate effect to address frequently occurring problems in the A-share market.

Major shareholders should not cut their equity stakes via restricted shares through fake divorce, short-selling or unregulated ways, the CSRC said.

Consequent to the new regulation, major shareholders cannot reduce their holdings through block trades or centralized bidding when the share price falls below net asset value per share, or fails to meet dividend standards.

The total number of shares sold by major shareholders in any period of three months should not exceed 1 percent of the company's total number of shares.

Meanwhile, major shareholders are required to pre-disclose cuts to their shareholdings. Illegal shareholding reductions will be ordered for repurchase and payment of the difference to the listed company, the new regulation states.

Shareholders holding a 5 percent stake in the listed company, actual controllers, board members, supervisors and senior executives should all abide by the new regulation in the context of paring their stakes, said the CSRC.

Independent financial analyst Guo Shiliang deemed the new regulation "most stringent" of the kind, "addressing almost all the previous loopholes regarding cuts to stakes". Going forward, more attention should be paid to companies' market value management.

"The other side of the story is a shareholder's long-term position in his or her own company, which is key to boosting the confidence of A-share investors," he said.

Tian Lihui, director of the Institute of Finance and Development at Nankai University, said that the new regulation steps up the crackdown on illegal shareholding reductions or reductions in a roundabout way. It is of great importance to safeguard the stability of the secondary market, protect the rights of individual investors and create a sound stock-market ecosystem, he said.

The central regulators' resolution and efforts to crack down on violations and illegal activities have helped build a healthier A-share market, said Liu Chenming, chief strategist of GF Securities.

Against that backdrop, investors have come to regard industry-leading companies and companies with core competitiveness as worthy of long-term investment and larger exposure.

Chen Guo, chief strategist at China Securities, said that investors can be strategically optimistic about the A-share market, given the recent regulatory moves on stake reductions and resuming IPO revisions.

International investors' confidence in A shares has also been rising mainly because of the 9.3 percent average annual business income increase reported by companies included in the MSCI China Index, said Wendy Liu, JPMorgan's chief Asia and China equity strategist, citing latest annual financial reports.

Listed companies from the internet, telecommunications, medicine and power supply sectors have led the business improvement, she said.

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