China’s Richest Tech Billionaires Are Selling Their Shares While The Markets Are Hot

China’s top three tech tycoons have recently pared back their holdings in the companies they founded by selling or transferring shares worth billions of dollars. Alibaba’s Jack Ma, Pinduoduo’s Colin Huang and Tencent’s “Pony” Ma Huateng appear to be taking advantage of overheating markets in the U.S. and Hong Kong to cash out when shares are trading at historical highs, analysts say. 

The biggest sale so far went to China’s second-wealthiest person, Alibaba’s cofounder Ma, who stepped down last year as executive chairman and has since devoted more of his time to philanthropy. Based on the company’s annual filing, Ma reduced his stake in the Hangzhou-based e-commerce giant down to 4.8% from 6.0% at the time of its secondary listing in Hong Kong in November. His net worth is currently estimated at $48.8 billion.

Alibaba declined to comment on when or for how much he sold the stake. Hong Kong’s regulator granted Alibaba a partial exemption from following its disclosure requirements because the bulk of its shares are not traded in Hong Kong, and Alibaba claims that it already discloses sufficient information under the U.S. Exchange Act.   

Alibaba’s New York-listed shares have risen more than 41% since the company reported Ma’s 6.0% ownership in November. Using an average share price for the past 9 months, Forbes estimates that Ma sold his shares for almost $5 billion.

Alibaba’s executive vice chairman, Joseph Tsai, also sold nearly $1.4 billion of his shares by reducing his stake to 1.6% from 1.9% during the same period. Taiwan-born Tsai, who’s fortune is currently estimated at $12.9 billion, appears on the wealth rankings for Hong Kong due to his residence there. 

While it isn’t uncommon for entrepreneurs to sell shares, the divestments by Ma and Tsai come amid similar moves by other Chinese tech billionaires. In fact, three out of the country’s top five richest people have reduced their stakes in their flagship companies since November last year.

Earlier this month, budget shopping platform Pinduoduo announced that Huang had transferred his Nasdaq-listed shares and cut his ownership to 29.4% from 44.3 %. And Tencent’s Ma has reaped a total of $815 million this year by divesting $555 million worth of the company’s Hong Kong-listed shares in June and another $260 million worth of stock in January. With a net worth of $61.8 billion, Ma is ranked No. 1 in China and No. 17 on the global list, according to the World’s Real-Time Billionaires rankings.

 “Their growth potential is good,” says Joseph Fan, a professor of finance and accounting at the Chinese University of Hong Kong. “But insiders selling shares still indicates that they view the market is overestimating the prospect of their companies.”

Shawn Yang, a Shenzhen-based managing director of research firm Blue Lotus Capital Advisors, says the U.S. Federal Reserve’s recent stimulus measures partly explain why stocks are rising. Investors with excess liquidity are piling into shares of these companies, because they have demonstrated stellar growth during the Covid-19 pandemic.

Pinduoduo’s Nasdaq-listed shares more than doubled so far this year, while Alibaba’s stock has gained 16% on the NYSE and Tencent’s stock is up 45% in Hong Kong.

Pinduoduo’s outsize gain came as revenues jumped 44% during the first quarter, when as many as 628 million active users flocked to the site for discounted goods during China’s economic downturn. However, some investors are sounding a note of caution.

“Pinduoduo has an unproven business model and remains unprofitable, and Huang may be cashing out before the company can be forced to validate a nosebleed valuation,” says Brock Silvers, chief investment officer of Hong Kong-based Adamas Asset Management.

The company declined to comment, referring to Huang’s letter published on July 1 for explanation. The entrepreneur wrote that he and the founding team donated 2.4% of Pinduoduo shares to a charitable trust and that he transferred another 7.7% to a company partnership that will in part fund “fundamental science research and social responsibility activities.” Huang didn’t explain what these activities would be.

His reduced stake now gives him an estimated net worth of $29.1 billion, making him the fifth-richest man in China on the World’s Real-Time Billionaires list.

Although investors may be overly enthusiastic, China’s leading tech companies still have room for growth, says Blue Lotus’s Yang. Tencent has untapped opportunities in overseas markets because it can promote its games abroad and attract more stay-at-home users.

Meanwhile, Alibaba is expected to maintain its lock on China’s e-commerce sector. Even with the rise of Pinduoduo, Alibaba currently has an undisputed advantage in the selection and quality of products offered, especially in its traditional strongholds of apparel and cosmetics, Yang says.