Why it is important to know the Substantial Shareholders of a stock?

Author: Lee TG

Whenever I look at the fundamentals of a company, I would want to look at the top 30 major shareholders. The information on substantial shareholders (holding at least 5% shares of the company) may provide some clues of the market behaviour of a particular listed company. There is certainly a significance in the 30 names of the shareholders and the % shareholdings of these investors. I am sharing what I am thinking from market news, analysts reports, internet discussion forums, market activities and charts of those stocks that I observed. The names I want to look at would be the names of the Institutional Investors and their shareholdings, and the substantial shareholders (5% or more shares).


1. If the company does not have institutional investors, then this company will not be on the radar to be covered by any broker or analyst, and we can say that any extraordinary market activities would be from the insiders or individual syndicates whose names may not be in the list of substantial shareholders of 5%, and the retail investor will not know who are the big buyers and sellers. But chartists will not be bothered about who is who, as reading the price and volume will show that there are speculative and syndicate activities in the stock. If a retail trader is alert enough to spot those stocks and able to read the chart well, there will be profit opportunities to follow the MM, if there is a syndicate behind the stock. If the stock price of a company never moves with volume for years, and reporting steady profits and dividend, that stock does not have syndicate, and the insiders are not interested to "goreng" the stock.


2. If the stock has Institutional Funds, investors have to differentiate the type of funds - GLICs (EPF, Tabung Haji, PNB) or other local and foreign funds. GLIC funds, (other than EPF which had distributed their investments to various funds for trading) will probably not participating in speculative trading. I think for nearly all IPOs, there will be funds participation, but the funds will either stay as a longer term investors, or will dispose off the new IPO shares whenever they can find a trading gain after listing, and the annual reports will show. The top 30 shareholders in the annual report will show whether there is participation of Institutional Investors. Traders or even long term fundamental investors should be careful if there are no institutional investors, as the stock could be fundamentally unattractive for fund participation.


3. The stocks that are often mentioned by brokers and analysts are perfect candidates for speculative trading by retail investors because of the high coverage and publicity in newspapers, brokers websites, and internet forums and blogs. These are the stocks that will have reasonable fundamentals, and seasonal enough for MM to create theme plays. Analysts will quickly spread news of a theme play, often rotational themes, or any other news that will attract retail investors to participate so that the funds will trade profitably or achieve whatever objectives that they want to achieve. Interest in the stocks be boosted as news will be spread around by remisiers, the newspapers and the internet, and retail investors without technical knowledge will probably lose more money after gaining a little.


It is easy to spot those fund managers trading stocks (stocks that funds will buy and sell within a short time frame of less than one year). If a fund holds a lot of stocks, then that fund is probably a MM. To know which stocks are syndicate or trading play stocks, look at the annual reports of all the funds in the market, and look at the names of the small and mid caps stocks - these stocks are the stocks to watch by smart traders to make trading profits. The smart traders are traders with good technical analysis knowledge to be different from the 95% herd. The big caps index linked stocks are the stocks that could be on a longer term hold by local funds, and will be only the play of Government Linked Investment Funds like PNB and EPF with participation of other smaller government link funds to support those counters in the FBMKLCI index.