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

Hong Kong-listed companies have spent at least US$3.8 billion repurchasing their own shares this year, a third higher than the past 12 quarters’ average: Wind Information

This potentially signals that valuations have become sufficiently cheap to make buy-backs an attractive use of cash, analysts at Allianz Global Investors say

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Published: 9:30am, 13 Mar 2024Updated: 11:15am, 13 Mar 2024

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.”