The Strategist

WSJ: Insiders of Chinese companies sold their shares before sharp declines

04/06/2022 - 11:24

Insiders at Chinese companies were selling large shares shortly before their prices plummeted, thereby avoiding losses of at least $10 billion over the five years from 2016 to 2021, the researchers found after reviewing Securities and Exchange Commission documents.

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U.S. researchers analyzed documents filed with the Securities and Exchange Commission (SEC) from 2016 through 2021. 

They found that insiders at companies based in China but listed in the U.S. avoided at least $10 billion in deal losses by selling shares in anticipation of significant price declines. This writes The Wall Street Journal, which reviewed the findings.

A year after the deals made by insiders of Chinese companies listed in the U.S., stock prices were on average 21% lower than they were at the time of the sales, meaning sellers avoided losses incurred by other investors. 

For example, in October 2020, Alibaba's payments partner Ant Group was preparing for an initial public offering, which would have likely increased the value of one-third of Alibaba's shares. Then Alibaba founder Jack Ma criticized Chinese regulators, and the authorities cancelled the IPO.

Alibaba shares fell 8 percent on the New York Stock Exchange on the day it announced the IPO’s cancellation. The day before the announcement, an entity controlled by an Alibaba insider, Sky Scraper Enterprises, sold $150 million worth of Alibaba stock, according to documents filed with the SEC. The sale of the stock was envisaged by the trading plan adopted two months before the deal.