Record stock buybacks to boost Hong Kong stock returns this year, Goldman strategists say

  • Companies such as Ping An Healthcare, WuXi Biologics and China Mobile to benefit from stock buybacks, strategists wrote
  • Firms ploughed a record US$5 billion to buy back their own shares in 2021, and have already spent US$800 million so far this year

Hong Kong-listed companies ploughed a record US$5 billion into stock buybacks last year, and this trend is poised to boost returns in coming months for names such as Ping An Healthcare, WuXi Biologics and China Mobile, according to Goldman Sachs.

Buy-backs this year have already amounted to US$800 million, the US bank said in a report to clients on Sunday.

“Strong buybacks tend to precede positive index returns,” equity strategists including Si Fu and Kinger Lau wrote. When buybacks surpassed to 0.05 per cent of market free-float, the index rose by up to 9 per cent in the following 12 months, citing its study on the Hang Seng Composite Index since 2013.

The landing page for Ping An Good Doctor, an application operated by Ping An Healthcare.

 

The Hang Seng Composite Index, a broad gauge comprising 500 stocks, has risen 1.8 per cent this year after a 16 per cent slump in 2021. The benchmark Hang Seng Index gained 3.1 per cent through Monday, having lost 14 per cent last year.

The companies with the biggest stock buybacks in Hong Kong last year include Ping An Healthcare, WuXi Biologics and China Mobile. WuXi Biologics has declined by 33 per cent this year, while Ping An health care and China Mobile have both risen about 19 per cent.

“A similar rising trend is observed in China A shares,” Goldman said. While buybacks in Hong Kong were dominated by the.

WuXi Biologics has declined this year, but other firms making buy-backs last year have gained in 2022

 

Consumer, technology and health care sectors dominated buybacks in Hong Kong, while information technology, materials and health care companies led the A-share market.

Chinese onshore companies that have made buybacks in each quarter over the past three years have seen average returns of 5 per cent and 8 per cent in the following six and 12 months, the Goldman report showed.

In the past, Chinese companies have hardly repurchased their shares as a means of deploying their cash. Stock buybacks represented only 2 per cent of cash usage for listed companies included in the MSCI China Index, the US bank added.

“Compressed valuations and encouragement from regulators have prompted companies with healthy balance sheets to return cash to shareholders,” Fu said.

As for onshore stocks, China’s securities watchdog in 2018 “advocated for listed companies to buy back their shares, especially when their share prices are lower than the net assets per share,” they strategists wrote. “The amount of A-share buybacks has dramatically increased since then.”

Author: Cheryl Heng, SCMP

You might also like