HK-listed firms pour spare cash into stock buy-backs

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.

Firms trading in Asia’s third-largest market have spent at least HK$29.8 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 buybacks 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 signalled that valuations had become sufficiently cheap to make buy-backs an attractive use of cash, analysts at Allianz Global Investors said.

In an average month over the past five years, 121 firms have bought back 8 billion yuan (HK$8.7 billion) worth of shares on China’s stock exchanges.

In February this year 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 were likely included energy, materials, telecommunications and industrials.

Stepped-up share buy-backs will add further momentum in reviving investor confidence after recent data showed an increase in 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 fell 0.1 per cent to 17,082.11 points yesterday, with the resilience holding up after the benchmark closed at its highest since November 28 a day earlier.

Among the benchmark constituents that posted hefty gains were drug maker Wuxi AppTec which said it spent 50 million yuan on buy-backs on Monday.