Bank of China

Regulator calls for share buy-back

PUBLISHED : Thursday, 02 August, 2012, 12:00am
UPDATED : Wednesday, 15 August, 2012, 10:51pm

The mainland's securities regulator is encouraging listed companies to buy back and cancel some of their shares, the latest effort to boost stock prices and bolster investor confidence.

The official China Securities Journal, citing an unidentified official with the China Securities Regulatory Commission (CSRC), reported yesterday that listed firms with strong cash positions would be urged to repurchase a portion of their shares because some of the companies' stocks had been undervalued amid the market fall.

A CSRC press officer confirmed the report yesterday, while refusing to elaborate on how the policy might be implemented.

The regulator has been striving to underpin the weak market since Guo Shuqing, a former China Construction Bank chairman, was appointed the regulatory chief late last year.

But the downward trend has continued as investors have been battered by a slowing domestic economy and deteriorating corporate earnings.

The unidentified CSRC official told the China Securities Journal that many of the mainland-listed companies, with price-to-book value ratios of nearly 1, were good buys.

By buying back a portion of shares and cancelling them, the companies can boost their per-share earnings, making their shares look more attractive to potential investors.

The Shanghai Composite Index gained 19.73 points, or 0.94 per cent to 2,123.36, yesterday. On Tuesday, it closed at 2,103.63, the lowest since March 2009. So far this year, the benchmark gauge has lost 3.5 per cent. That follows a 21.7 per cent decline last year and a 14.3 per cent drop in 2010.

People's Daily, Beijing's flagship mouthpiece, reported yesterday that the pessimism over the market outlook was driven by panic, rather than fundamental problems.

It called on investors to increase equity holdings because they could receive an annualised return of more than 3 per cent by investing in profitable blue-chip companies such as PetroChina and Industrial and Commercial Bank of China.

By comparison, the benchmark one-year deposit rate at mainland banks stands at 3 per cent.

'Regulators are making hard attempts to buoy the market, but the lip service can only support a short-term rally,' Essence Securities analyst Liu Jun said. Any rally 'will turn out to be short-lived because investors are expected to trim their holdings soon due to worries about the economic uncertainty.'

In February, Guo said investors would be rewarded an 8 per cent return on their investments if they bought shares in the mainland's most profitable listed companies. Since he took office at the CSRC, mainland investors have been expecting him to rescue the beleaguered market. Guo has rolled out a series of market-boosting measures, but the efforts have so far not paid off.