Do Asia block trades signal negative news?

May 5, 2015 2:53 PM (UTC+8)

 

As readers of this column know, Asia Unhedged is a notorious bull on the Chinese stock market and other markets in the region. However, recent news could hint a disturbing development.

As Asian stock markets post stellar returns this year, the number of block trades hitting the market is also reaching record highs. Block trades occur when companies or shareholders sell a large block of shares to investors outside of the open market. These have reached $29 billion year to date in the Asia-Pacific region, according to data from Dealogic, compared to $23 billion, in the first four months of 2013, the last record-breaking period.

So far this year, the MSCI Asia Pacific index is up 11%. But China is where the main action is. The Shanghai Composite Index has soared 39% this year, while Hong Kong’s Hang Seng Index has jumped 19%. Many Chinese and Indian companies and their private-equity owners are taking advantage of the booming markets to sell shares. And as any good investor knows, when insiders sell, it often means they think this is the best time to get out and don’t expect the market to go much higher. Insiders are also worth listening to because they know what’s actually going on inside the companies.

The following are the top four block trades so far this year, according to the Wall Street Journal.

  • January saw the biggest trade when the Indian government disposed of US$3.7 billion worth of shares in state miner Coal India.
  • March matched that when U.S. oil giant Chevron (CVX) sold its US$3.7 billion stake in Caltex Australia, which runs an oil-refining business in that country. At the time of the sale, Caltex Australia shares had climbed 10%, compared with the 7.7% in the broader Australian market.
  • Japanese drug marker Daiichi Sankyo made the third biggest deal, selling its US$3.2 billion stake in Indian drugmaker Sun Pharmaceutical Industries.
  • The fourth-largest trade was the US$2.1 billion sale of its stake in Shanghai-listed Industrial Bank by Hang Seng Bank, a Hong Kong- and China-focused lender owned by HSBC Holdings.

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