Hong Kong-listed companies pour spare cash into stock buy-backs, washing away the red ink from Hang Seng Index

Hong Kong-listed companies pour spare cash into stock buy-backs, washing away the red ink from Hang Seng Index

Hong Kong-listed companies pour spare cash into stock buy-backs, washing away the red ink from Hang Seng Index

Companies listed on the Hong Kong stock exchange have accelerated their share buy-back programmes as a means to deploy spare cash and boost investor confidence, a move that has propelled the stocks benchmark to a three-month high, erasing all of its year-to-date-losses.
Companies trading in Asia’s third-largest market have spent at least HK$29.8 billion (US$3.8 billion) repurchasing their own shares this year, representing a 33 per cent increase over the past 12 quarters’ average, according to financial data provider Wind Information. In 2023, the total value of buy-backs rose to a record HK$126 billion. On the mainland, the corporate action has also taken hold as the securities regulator encourages such moves to stabilise the market.
On the heels of share purchases made by China’s national team, a term that refers to state-backed buyers, many smaller companies have also bought back stock. This potentially signals that valuations have become sufficiently cheap to make buy-backs an attractive use of cash, analysts at Allianz Global Investors said.

In an average month over the last five years, 121 firms have bought back 8 billion yuan worth of shares on China’s stock exchanges. In February 2024 alone, 669 firms completed or implemented buy-backs worth 55 billion yuan, according to Allianz. It said sectors with a high proportion of state-owned enterprises where buy-backs are likely include energy, materials, telecoms and industrials.

Stepped-up share buy-backs will add further momentum in reviving investor confidence after recent data showed an uptick in Chinese consumer prices and President Xi Jinping’s call for a “new-quality productive force” spurred optimism about a pivot to an economy more reliant on tech innovation and consumption.

“Buy-backs are typically seen at a time when the market trades at or close to the bottom,” said Ren Lang, an analyst at Kaiyuan Securities. “Buy-backs are very indicative in flagging that valuations and share prices are low. They can have a material impact on supporting stock prices.”

The Hang Seng Index jumped 3.1 per cent to 17,093.50 on Tuesday, closing at its highest since November 28. Among the benchmark constituents that posted hefty gains were drug maker Wuxi AppTec which said it spent 50 million yuan (US$7 million) on buy-backs.

Among other market heavyweights that announced buy-backs in recent weeks were e-commerce giants Alibaba Group Holding and JD.com. Alibaba said it would boost its stock repurchases by US$25 billion while JD.com disclosed plans to buy back as much as US$3 billion worth of shares over the next three years.

“The momentum in share buy-back has signalled the improving corporate confidence before the upcoming results releases mainly in late February and March,” said index compiler Hang Seng Indexes in a report last month. “This would help boost market sentiment and attract investors that focus on long-term funds.”

Hang Seng Index members accounted for 83 per cent and Hang Seng Tech Index constituents comprised 55 per cent of buy-backs announced this year, according to the compiler of the city’s benchmark stock gauge.

However, buy-backs are not a guaranteed cure for a weak stock market performance. The Hang Seng Index fell 14 per cent in 2023, a year of record repurchases. Tencent Holdings, which bought back the most with HK$48.4 billion of stock repurchases, dropped 7.5 per cent in the span.

“When the companies believe their listed shares are currently undervalued and expect a meaningful re-rating in future, they would perform share buy-back to support the share price, improve their financials, and enhance shareholders’ return,” said Hang Seng Indexes.

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