Can disposal stocks be sold? A deep dive into trading restrictions and investment mechanisms

When a stock is placed on the special observation list due to abnormal trading behavior, many investors’ first question is: Can this stock still be bought and sold? The answer is yes, but trading will be significantly restricted. This article will help you understand the trading mechanisms and investment value of stocks under disposal from a practical perspective.

Under what circumstances is a stock classified as a disposal stock?

Before a stock enters the disposal list, it usually goes through a process. When a stock exhibits abnormal trading behavior in a short period—such as a rise of over 100% within 30 days, a daily turnover rate exceeding 10%, or trading volume significantly enlarging within 6 trading days—the exchange will first mark it as a “Notice Stock,” which has no trading restrictions at this stage.

However, if the stock continues to meet these abnormal standards for several consecutive days, it will be further upgraded to a “Warning Stock,” and subsequently included in the “Disposal Stock” list. At this point, trading restrictions will take effect.

For example, in December 2023, stocks of 10 listed companies including Evergrande, Lishan, and Hongguang were simultaneously classified as disposal stocks. Such situations are quite common.

Disposal stocks can be traded, but liquidity will drop sharply

Disposal stocks are not untradeable, but the way they are traded changes significantly. The most direct impacts include:

First Disposal Stage: The matching time for stocks changes from continuous trading to once every 5 minutes. When a single buy order exceeds 10 lots or accumulates over 30 lots, investors must perform a “circle deposit transaction”—the system will first freeze the cash in the investor’s account, and only after confirming sufficient funds will the transaction proceed. This is entirely different from the T+2 payment method for regular stocks. Additionally, margin trading and securities lending functions will be suspended.

Second Disposal Stage: The situation worsens further. Matching time extends to once every 20 minutes, and regardless of the purchase amount, all trades are conducted via circle deposit transactions. These layered restrictions often cause trading volume to plummet sharply, making buying and selling much more difficult.

The disposal period typically lasts for 10 trading days. If, during this period, the intraday offset trading volume accounts for more than 60% of the total daily trading volume, the disposal period will be extended to 12 trading days.

Why should investors be cautious about disposal stocks?

On the surface, stocks that are restricted are considered higher risk. Reduced liquidity means that investors will encounter difficulties when trying to buy or sell quickly, especially for short-term traders, as additional time and transaction costs will significantly increase.

However, there is a market saying: “The more they are restricted, the bigger the tail.” This is because some stocks classified as disposal stocks often become market hotspots before entering the restriction period, with short-term surges. After entering the disposal period, due to limited liquidity and more stable chips, retail investors find it harder to follow the trend and speculate. Once the restrictions are lifted, these stocks sometimes experience a new wave of upward movement.

However, this logic also contains pitfalls. If a stock faces short-selling or deteriorates fundamentally during the disposal period, escaping in time becomes extremely difficult.

How to judge whether a disposal stock is worth investing in?

The investment value of disposal stocks should be assessed from two dimensions:

Fundamental analysis: Deeply research the company’s core business, product competitiveness, and financial health. Look at key indicators such as revenue growth rate, gross profit margin, and net profit to determine whether the company’s profitability is stable. Observe long-term trends in financial statements rather than being misled by short-term fluctuations.

Chip flow analysis: Focus on capital flow. Since margin trading and securities lending are suspended during the disposal period, the buying and selling activities of major funds tend to be more “clean,” making it easier to identify the true intentions of institutional capital. Investors can track whether the main players are buying or selling through closing data.

Practical advice: Before investing, confirm whether the stock price is in a sideways consolidation rather than a continuous decline. Also, evaluate whether the current valuation is reasonable; if the stock is undervalued and the fundamentals are good, the disposal period might actually be an opportunity to buy cheaply.

The different outcomes of Weifeng Electronics and Yangming

Weifeng Electronics (6756) was classified as a disposal stock in June 2021. During this period, its stock price accumulated a 24% increase, and after breaking the restriction, it continued to rise. This confirms the saying: “The more they are restricted, the bigger the tail.”

In contrast, Yangming (2609) was also classified as a disposal stock due to excessive gains but re-entered the second disposal stage in July because of “over 6 days of cumulative decline.” Since then, its stock performance has remained sluggish.

The completely different outcomes of these two stocks illustrate that the subsequent trend of disposal stocks depends on fundamental support. Short-term abnormal trading does not determine the long-term direction.

Short-term traders vs. long-term investors: different choices

For short-term traders, restrictions on disposal stocks have a significant impact—no day trading means losing an important trading strategy, and the 5-minute or 20-minute matching times greatly reduce trading efficiency. Therefore, short-term traders generally should avoid disposal stocks.

However, for long-term investors, the situation is entirely different. Longer matching times and circle deposit restrictions have minimal impact on long-term holdings. Moreover, regulators often require disposal companies to disclose financial information more frequently, allowing investors to stay better informed about company developments.

Long-term investors should focus on whether the company still has growth potential during the disposal period and whether its fundamentals remain stable. If the company’s operations are sound, the restrictions are only temporary technical hurdles and unrelated to the company’s quality.

Final recommendations

Disposal stocks are merely a temporary abnormal trading state and do not reflect the company’s quality. The key is the investor’s risk tolerance and investment horizon.

Long-term investors with high risk tolerance, if they have thoroughly researched and believe in the company’s value, can consider entering when valuations are reasonable and the stock is consolidating, waiting for the restrictions to lift for potential gains. But if an investor prefers a conservative approach or the overall market is in a downturn, investing in disposal stocks might not be worthwhile.

In any case, focusing on the company’s fundamentals and chip flow analysis is far more important than blindly following the idea of “the more restricted, the bigger the tail.”