Banks complete buyback, more coming?
Recent buybacks of ICBC and AgBank shares look modestly successful, raising the possibility of more buybacks in the next 12 months.
But that said, China bank shares have been relative laggards over the longer term in general due to concerns about a bad loan crisis, and their modest outperformance over the last six months doesn't offset their broader weakness over the last few years. Still, I wouldn't be surprised to the banks' controlling shareholder, Central Huijin, launch a new buyback program in Shanghai, or possibly even in Hong Kong, to signal to the market that Beijing remains committed to supporting the country's Big four lenders.
So, what exactly did Huijin, which was almost certainly acting under orders from Beijing, get for its combined 1.4 billion in spending on shares of the two big banks? My quick analysis shows that AgBank's shares did relatively well during the period, rising 10 per cent versus a six per cent rise for the broader market. ICBC shares did less well, but still managed to slightly outperform the broader market.
Overall the results look relatively satisfactory, since Chinese banks have generally underperformed the market in both Hong Kong and Shanghai in recent years. So this modest outperformance should come as a welcome relief for Beijing, especially when one considers its 1.4 billion yuan investment in the buyback was relatively modest compared to the banks' market values that total in the tens of billions of dollars.
Such buybacks could come in either Shanghai or Hong Kong, depending on how the banks' shares in both markets are performing. Barring any major bad news, such buybacks do seem like a good value to boost the banks' shares in an otherwise quiet climate. But if bad news does start to come, most likely in the form of a spike in bad loans or slowing profits, this kind of modest share buyback will do little to halt the sell-off that would likely follow such a negative turn.
Bottom line: Recent buybacks of ICBC and AgBank shares look modestly successful, raising the possibility of more buybacks in the next 12 months.