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Long market slide draws large China shareholders into buy-backs

(Xinhua)
Updated: 2008-06-26 19:06

What would a reasonable investor do when his company's share price has fallen into the reasonable range?

Warren Buffet prefers a stock buy-back. So do many Chinese investors, a report by Shanghai-based Wind Info Co Ltd says.

The report, carried by Thursday's China Securities Journal, shows that large shareholders and executives from 35 Chinese listed companies opted for buy-backs, involving 1.16 billion yuan ($169 million), since the start of the year amid the bearish trend of the stock market.

The benchmark Shanghai Composite Index has fallen by more than 52 percent from its peak in mid-October. It eased 3.16 points, or 0.11 percent, to close at 2,901.85 points on Thursday.

Liu Jiazhang, a China Minzu Securities analyst, explained there were two scenarios in which an executive would purchase his company's shares: to show loyalty or to invest in undervalued shares.

The report says some industrial capitalists have taken an opposite path to the traditional practice of selling shares to cash in.

This showed "the value of financial capital investment on the stock market has won the favor of some entrepreneurs" like Zhou Xiaofeng, chairman of Ningbo Huaxiang Electronic Co Ltd, it said.

Zhou spent 57.83 million yuan buying back 4.61 million of the Shenzhen-listed eastern Zhejiang company shares from June 11 to 13 at a price shy of half of its peak in October.

Huang Shuo, an analyst at Oriental Wisdom Securities Research Institute, a consulting company, commented that the surge in stock buy-backs by a mounting number of shareholders and executives is a profit-targeted investment mode of behavior.

Liu added that those industrial capitalists are primarily concerned with the long-term development of the enterprises. If they can see their investment become more valuable, they will try to get a larger slice of the company.

In a related development, controlling shareholders of six listed companies including Sany Heavy Industry Co Ltd and Huangshan Tourism Development Co Ltd said in recent weeks they would extend their lock-up periods for shares to be traded freely on the market by 18 months to two years, which was taken as a sign of confidence on their companies' future performance.