Asia has seen a wave of stock buybacks, and bank analysts say it won’t stop anytime soon.
Chinese tech giant Alibaba said last week that it would increase its share buyback program from $15 billion to $25 billion. Phone maker Xiaomi on Tuesday announced a buyback of up to 10 billion Hong Kong dollars ($1.28 billion), while JD’s online healthcare arm JD Health said it would buy back shares worth up to 3 billion Hong Kong dollars.
The news jumped the shares of those firms.
“Chinese companies are behaving similarly to their US counterparts, announcing large stock buyback programs on weakness in an effort to boost investor confidence,” said Ben Silverman, director of research at investment consulting firm Verity.
Here’s how share buybacks work: When a company repurchases its stock, the move reduces the number of publicly traded shares.
Buybacks can push the price of each share higher because some of the common metrics used to evaluate a stock’s price are spread over fewer shares. As a result, the stock may look more attractive.
The trend isn’t just limited to Chinese tech giants. British bank HSBC, insurance giant AIA and Japanese automaker Toyota have also announced stock buybacks in the past few weeks.
‘Quick trend’ in stock buybacks
China’s tech stocks have tumbled since last year, fueled by regulatory action in China as well as US-China tensions, among other factors.
“We have seen a tendency for Chinese companies to announce buyback plans [year-to-date] Against the backdrop of broad-based Chinese equity valuations,” Morgan Stanley said in a March 24 note.
“We believe this trend will continue for a long time as it is reinforced by [China Securities Regulatory Commission] Last week’s statement clearly encourages listed companies to do share buybacks,” said analysts at the investment bank.
There was speculation that Tencent might be next, though markets were disappointed when the Chinese gaming giant didn’t announce a recent buyback.
“The market certainly expected Tencent to announce a buyback. I think it was mainly Alibaba and it had a positive price response,” said Neil Campling, head of technology, media and telecommunications research at Mirabaud Equity Research.
,[Tencent] Noticed that their own stock price has also dropped significantly – which could be a sign that they will be considering a buyback, so I don’t think the possibility should be ruled out completely.”
Nomura said the combination of a generally modest stock valuation and a “reasonably strong” balance sheet would encourage share buybacks. The Japanese investment bank said the trend suggests room for higher shareholder returns.
“We think this topic is likely to be the focus in the coming weeks, especially after a rally in the stocks of [U.S.-listed Alibaba] It then increased its share buyback program to USD10bn,” the March 24 note said.
In the short term, markets react particularly favorably to buyback announcements for US-listed Chinese stocks, according to Morgan Stanley’s analysis of data from 2014 to 2021 on such stocks as well as A-shares, or mainland-listed stocks. Will give
“US-listed Chinese equities responded most positively compared to Hong Kong listings and A-shares,” said investment bank analysts.
Stocks in the best position to buyback
Morgan Stanley chose the stocks that are best positioned to buyback based on a list of criteria: balance sheet strength to support the buyback, “heavily discounted” company valuation, large market capitalization, and strong fundamentals.
Here are the top 20 stocks from Morgan Stanley’s pick, ranked by market capitalization:
china tourism group duty free
Shanxi Xinghuacun Fen Wine Factory
end game products
Foxconn Industrial Internet
Greek Electric Appliances
Goldman Sachs also examined stocks with the potential to do stock buybacks. In a March 25 note, the bank said it has focused on companies with a track record of share buyback announcements.
Goldman said, “While cash-rich and high-profit growth stocks appear particularly well to repurchase shares, we note that companies with a track record of buybacks often repurchase even when they are cash-rich.” does not announce.” Companies with a history of such moves.
Here are the top 10 Japanese stocks from Goldman Sachs, ranked by market capitalization. The companies have announced buybacks in five of the last six fiscal years – but have yet to announce any in fiscal 2021:
Daiwa Securities Group
, CNBC’s Michael Bloom contributed to this report.