Shares of China’s chipmakers drop as state-backed fund plans to cut stake

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Investors are running scared after China’s semiconductor-focused investment fund announced Friday plans to cut its stake in three chipmakers. Shares of three chipmakers fell by up to almost 8% when the market opened on Monday.

Why it matters: The move came after the National Integrated Circuitry Investment Fund, dubbed the “Big Fund,” closed a new mass-fundraising in October amid China’s pushes to mobilize public and private funds into the sector.

  • The fund is backed by China’s Ministry of Finance and state-owned enterprises such as China National Tobacco and the country’s three major telecom operators.
  • Experts believe that state-backed funds targeting specific sectors act as a vote of confidence from the government, and help lure private capital to invest in those sectors.

Details: Shares of Beijing-based flash memory designer Gigadevice Semiconductor, fingerprint identification chips maker Shenzhen Goodix, and Hunan Goke Microelectronics tumbled during the weekend. On Friday night the Big Fund announced it would reduce stakes in them by around 1% each during the next three months.

  • The fund currently holds 9.7%, 6.6%, and 15.6 % in the three companies respectively.
  • Share prices of the three companies had dropped by 5.9%, 7.8%, and 7.9% respectively as stock markets opened on Monday morning.
  • The state fund said the purpose of the offloading was to “realize better returns” for shareholders, according to one of the filings.
  • Analysts at China Merchants Securities, a broker, said (in Chinese) the move was a “routine operation” and won’t change the Chinese government’s strategy to support the technology sector.

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Context: The “Big Fund” raised RMB 204 billion (around $29.1 billion) in October in its second financing round.

  • The fund was set up in 2014, rasing RMB 138.7 billion from the finance ministry, China Development Bank Capital, as well as several other state-backed enterprises.
  • The first fund has so far invested in 23 semiconductor firms ranging from chipmakers to chip designers and semiconductor material makers, according to data from securities firm Changfeng Securities (in Chinese).
  • Last month, China set up another state-backed fund focusing on the manufacturing industry, which raised $21 billion.