Hong Kong-listed companies are rushing to buy back shares in a bid to boost valuations as a rout extends.
(Bloomberg) — Hong Kong-listed companies are rushing to buy back shares in a bid to boost valuations as a rout extends.
Stock repurchases are expected to reach HK$92.9 billion ($11.9 billion) in 2023, or nearly four times higher than the prior five-year annual average, index compiler Hang Seng Indexes Co. said in a blog post on Tuesday. They’ve already reached HK$73.5 billion through Sept. 15, about 70% of last year’s total.
Hong Kong’s benchmark Hang Seng Index has fallen about 9% in 2023, more than any other major index worldwide, as lingering concerns about China’s economy and troubles at the property sector kept investors away. Pessimism remains strong even as the latest economic data has shown some signs of stabilization on the back of stimulus measures by Beijing.
The increased buybacks imply “a combination of low valuations and relative value,” said Marvin Chen, a Bloomberg Intelligence strategist. “Also, some of the increased buybacks are to compensate and lessen the impact of foreign funds selling, such as in the case of Tencent Holdings Ltd. and Alibaba Group Holding Ltd.”
The trend extends last year’s strong record, when stock repurchases jumped 175% as the broader market slid. “This extraordinary high-level of buyback value might reflect that the corporates believe their listed shares in Hong Kong are undervalued,” Hang Seng Indexes Co. said in the post.
While buybacks may signal that corporate directors deem shares in their companies as cheap, such transactions can also be a means to tweak financial statements or an indication that management lacks ideas on how to use money for expansion or diversification.
The Hang Seng Index is trading at just 8.4 times forward price-to-earnings ratio, below the five-year average of 10.5 times, according to Bloomberg-compiled data.
(Updates overall.)
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