What happened
Chinese stocks took investors for a wild ride on Friday. At one point, shares of Baidu (BIDU 1.36%) fell nearly 14%, Tencent Music (TME 3.95%) 20%, Vipshop Holdings (VIPS 1.28%) 22%, and IQIYI (IQ 6.84%) 27%!
By day's end, however, most of these losses had been erased. Although Tencent closed down 1.3% and Vipshops 2.4%, for example, Baidu actually ended up gaining 2% by the closing bell. (IQIYI was the odd man out, closing down 13.2% -- which was still only half the loss it seemed headed for 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 that I'm aware of). No analysts downgraded these Chinese stocks, nor nudged their price targets lower.
What did happen, though, is that someone seems to have unloaded some fairly massive numbers of shares on the open market today. As TheFly.com reported late this morning, Goldman Sachs was shopping around a 10 million-share "bloc" of Baidu shares Friday. The investment bank was also apparently trying to sell 32 million shares of Vipshop, and 50 million shares of Tencent Music. At the same time, StreetInsider.com reported a rumor today that there was a similarly "large block" of IQIYI shares for sale.
In addition, there have been persistent worries about Chinese stocks getting delisted from U.S. stock exchanges.
Now what
With regard to big sales of stock, 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, they usually only buy a stock when they see a bargain). The seller might be a company insider, for example, and have received stock option grants that entail a large income tax obligation -- and decide to sell shares to satisfy the tax man. They might own too much of a stock that has gone up a lot (Baidu, Tencent, and Vipshop have all doubled over the past year after all), and want to sell some shares to diversify their wealth.
Of course, there's also a third reason that someone might want to sell a bunch of shares in a hurry: they lose faith in a company and don't want to own it anymore. That kind of loss of faith can be infectious, and cause panic in the market. I suspect that's what we saw happen today. Happily, by the time the closing bell rang, cooler heads had prevailed.
As for Chinese stocks getting delisted, that's a different story entirely. At this point, it's too early to tell whether those fears might be warranted. The day's volatility is consistent with the level of uncertainty about whether U.S. investors might have no longer be able to buy shares of these and other Chinese stocks on the NYSE or Nasdaq.
