Chinese blue chips unveil aggressive share buy-backs as tariff day looms

PUBLISHED : Thursday, 05 July, 2018, 6:57pm
UPDATED : Thursday, 05 July, 2018, 11:49pm

Chinese blue chip companies have announced share buy-backs in recent weeks worth billions of yuan, reflecting efforts to shore up stock prices as concerns mount of further downside action after US tariffs on Chinese imports come into effect on Friday.

Home appliance conglomerate Midea Group became the latest blue chip to join the trend, announcing on Thursday morning that it planned to buy back up to 4 billion yuan (US$603.4 million) worth of company shares.

The repurchases will be carried out over the next 12 months at prices below 50 yuan per share, according to a filing made to the Shenzhen Stock Exchange. Media plans to buy at least 80 million shares, accounting for 1.2 per cent of firm’s total equity, the filing said.

Midea, which is also the owner of German robot maker Kuka, said that the decision was “based on confidence in future development and company value”, and that the move “aims to boost investor confidence and protect investors’ interests”.

The announcement helped send Midea’s shares 2.1 per cent higher in Shenzhen on Thursday.

Since the start of the year to the close of trade on Wednesday, the final session before the buy-back announcement, Midea’s shares had fallen 18.6 per cent.

Shanghai listed auto dealership China Grand Automotive Services said on Wednesday night that it would buy back 200 million yuan worth of shares in the next six months at prices below 7 yuan per share.

A total of 84 listed companies have announced share buy-backs since June totalling 10 billion yuan, according to the Securities Journal.

China’s benchmark Shanghai Composite Index has fallen by more than 20 per cent from its peak in January, technically entering a bear market on June 26.

The sell-off has also dragged down stocks in Hong Kong, with the city’s Hang Seng Index slipping to its lowest closing level in seven months on Wednesday.

China Evergrande, the nation’s biggest property developer, spent HK$667 million to buy back 33 million of its shares in Hong Kong on Tuesday and Wednesday.

On Friday the Trump administration is set to impose tariffs worth US$34 billion on Chinese imports. Beijing is expected to fire back with equivalent tariffs on US goods, putting the world’s two largest economies on track for a trade war.

“As the trade tensions intensify, we expect the US dollar/ yuan to reach 6.95 by the end of 2018, putting pressure on China equities,” said David Cui, an analyst with BofA Merrill Lynch in a research note on Thursday.

Cui expects real estate developers and financials to be among the most vulnerable sectors to a further sell-off. He added that telecoms, independent power producers, and the oil and gas sector would likely prove more defensive, while gold and jewellery retailers in Macau may benefit.