(Yicai) May 26 -- Even after investors pared their holdings in the seven stocks that make up just over half of the ChiNext Index’s weighting by CNY32 billion (USD4.7 billion) since the fourth quarter of last year, the gauge -- often dubbed China's equivalent to the Nasdaq -- climbed to a record high this month and now hovers near its peak.

Led by those seven heavyweight stocks, the ChiNext Index [SHE: 399006] hit 4,090 on May 14, surpassing the previous record high of 4,037 set in 2015. It edged 0.5 percent lower to 4,043.07 today, with 4.26 billion shares changing hands, after closing up 2.1 percent at 4,021 yesterday.

The seven stocks -- Contemporary Amperex Technology, Zhongji InnoLight, Eoptolink, East Money, Sungrow Power Supply, Victory Giant Technology, and TFC Communication -- belong to today’s hottest sectors, including new energy, artificial intelligence hardware, and non-bank finance.

On April 23, battery giant CATL announced that Ningbo United Innovation New Energy Investment Management Partnership sold 58 million shares through a negotiated transfer, cutting its stake to just below 5 percent from 6.2 percent and cashing out about CNY23.8 billion based on an estimated price of around CNY410 (USD60.47) per share. 

Gao Guangrong, the controlling shareholder and actual controller of optical modules maker Eoptolink, reduced his stake to 6.2 from 7.4 percent after selling 11.43 million shares through a negotiated transfer on Oct. 9 for CNY328 each, totaling around CNY3.7 billion (USD544.5 million).  

Victory Giant, a printed circuit board supplier, said several executives sold 2.37 million shares between them, equal to around 0.3 percent of the company’s total, at an average price of around CNY190 apiece on Aug. 4, banking about CNY450 million (USD66.4 million).

The market usually interprets such reductions a judgment on a stock’s valuation, meaning that the current share price may already reflect the company’s long-term growth potential, or as sales driven by personal financial planning, Yu Fenghui, a consultant at the Top 100 Hong Kong Listed Companies Research Center, told Yicai.

This may weigh on a stock in the short term, Yu noted, but this phenomenon is not unusual for ChiNext growth names and forms part of the market’s self-correction mechanism. The key is to judge each case on its own facts, he said, adding that if a company has strong fundamentals and a clear growth outlook, short-term volatility should not have a lasting impact.

Some of the seven firms still reported around 50 percent net profit growth for last quarter, so their fundamentals remain positive, according to Li Qian, an investment advisor at Huiyan Zhitou Technology. For growth stocks on the ChiNext market, the trend does not necessarily signal an immediate end to the bull market, he told Yicai.

Investors pursuing high-growth sectors should pay closer attention on an individual stock’s earnings certainty, capital efficiency, and the real transmission effects of share reductions or share issuances, and should clearly distinguish between “normal exits by industrial capital” and “insiders running ahead,” Li noted.

Partial stake sales usually reflect early investors taking profits at high prices, the implementation of equity incentives, or the liquidity needs of individuals and institutions, rather than a deterioration in fundamentals, said Wen Tian'na, chief executive officer of Boda Capital.

Most of the ChiNext’s seven heavyweights still delivered strong first-quarter growth, supported by robust momentum in AI computing power and new energy sectors, Wen added, noting that if long-term industry trends remain unchanged, investors should pay more attention to performance and policy support.

Editor: Martin Kadiev