what happened
Chinese stocks took investors for a wild ride on Friday. At one time, sections of Baidu (NASDAQ: BIDU) fell nearly 14%, Music by Tencent (NYSE: TME) 20%, Take Vipshop (NYSE: VIPS) 22%, and IQIYI (NASDAQ: IQ) 27%!
By the end of the day, however, most of these losses had been wiped out. While Tencent closed down 1.3% and Vipshops 2.4%, for example, Baidu closed down winning 2% with the closing bell. (IQIYI was the weirdest guy out there, closing down 13.2% – which was still only half the loss it seemed earlier in the day).
So what’s up with that?
Image source: Getty Images.
so what
Good news first: None of the four reported bad earnings (or any other bad news I’m aware of). No analysts traded these Chinese stocks, nor did they lower their lower price targets.
What rinn It does happen, however, that someone seems to have loaded some medium – sized shares on the open market today. As TheFly.com reported late this morning, Goldman Sachs was buying around a “blockchain” of 10 million shares of Baidu on Friday. The investment bank also appeared to be trying to sell 32 million shares of Vipshop, and 50 million shares of Tencent Music. Meanwhile, StreetInsider.com reported today a rumor that a “big block” resembled IQIYI shares for sale.
In addition, there have been ongoing concerns about Chinese stocks getting listed by U.S. stock exchanges.
Now what
When it comes to big stock sales, we at The Motley Fool try to remind investors that there are all sorts of reasons why a shareholder might want to sell shares of a company they own (contrariwise , usually only buy stock when they see a bargain). The seller may be an insider company, for example, and they have received stock option offerings that include a large income tax liability – and decide shares sold to satisfy the taxman. They may own too much stock that has gone up a lot (Baidu, Tencent, and Vipshop are all duplication over the past year after all), and they want to sell some shares to increase their wealth.
Of course, there’s also a third reason someone might want to sell a handful of shares in a hurry: they lose faith in a company and don’t want to exist anymore. That kind of loss of faith can be contagious, and a market shock. I suspect that is what we saw happen today. Fortunately, before the bell rang, there had been colder heads.
As for Chinese stocks getting listed, that’s a completely different story. At this stage, it is too early to say whether these fears could be attributed. The volatility of the day is consistent with the degree of uncertainty as to whether U.S. investors would be unable to buy shares of these and other Chinese stocks on the NYSE or Nasdaq.
This article represents the opinion of the writer, who may not agree with the “official” recommendation position of the Motley Fool chief consulting service. We are motley! Questioning an investment dissertation – even one of our own – helps us to think critically about investing and make decisions that will help us become softer, happier and richer.