Since the beginning of this year, the Hang Seng Index (HSIHK) has accumulated **1722%。
In comparison, Singapore's FTSE Channel Index has accumulated **468%, and the Shanghai Composite Index has accumulated **229%, the Dow Jones Industrial Average has accumulated **9 so far this year83%, the UK's FTSE 100 index has accumulated **177%, the German DAX index accumulated **2073%, Nikkei 225 Index cumulative **2587%, and the Korea Kospi has accumulated **1336%, India's Sensex30 Index**680%。
Despite the similarity of rival Singapore, both of which are **, the Hang Seng Index remains at the bottom of the list, as shown in the table below.
As you can see in the chart below, the Hang Seng Index has almost fallen to its low levels during the 2008 financial crisis.
The performance in the last five years has been all the way down, as shown in the chart below.
In the shaded part of the chart below, the P/E valuation of the Hang Seng Index has also fallen to its lowest level in recent years.
Under the influence of the sluggish performance of the secondary market, the scale of IPO financing of Hong Kong stocks has shrunk significantly, and it has fallen out of the top five in the world. The new market has shrunk, the exit channel has been blocked, and the high interest rates in Europe and the United States have led to more cautious funds on venture capital. As a result, many listed companies have slowed down the pace of outbound investment or expansion, preferring to hold large amounts of cash.
In this context, share buybacks have become an effective strategy for listed companies to comfort shareholders and make efficient use of the cash on hand.
Since December, a number of Hong Kong-listed companies have implemented large-scale share buybacks. HSI constituents are in the spotlight due to their sheer size and strong focus on fundamentals, with buybacks being particularly noteworthy. Led by these blue chips, other listed companies have also launched buyback programs.
What does a buyback do?
In the short term, the implementation of share buybacks by listed companies will help to reduce the short-term selling pressure of shares by adjusting the short-term supply and demand liquidity of shares in the market.
In the long run, the buyback and cancellation of the number of issued shares can effectively expand the equity of existing shareholders.
However, it should be emphasized that the repurchase should not be too high, otherwise it may not only damage the rights and interests of shareholders, but may reduce shareholders' returns. For example, suppose a public company has a large amount of cash, and its shareholders can receive a corresponding income from that cash. If the company uses this cash to buy back shares at an unsuitable ** position, it means that the company has given up the opportunity to use this cash to make higher profits. This is called opportunity cost in economics. When the opportunity cost is too high, the listed company not only fails to provide benefits to existing shareholders, but may otherwise squander opportunities to acquire high-yield assets.
Judging from the current Hong Kong stock environment, trading has contracted significantly, and many blue-chip companies are undervalued, thus providing a reasonable buyback opportunity.
toTencent (00700.)hk）For example, according to the estimation of Finet, since the beginning of this year, Tencent (00700HK) or a total of 422HK$1.7 billion2.8 billion shares, with an average buyback** of 330HK$01.
Finet listed Tencent's repurchase amount and the number of shares repurchased each trading day, and estimated the average repurchase price of each day, as shown in the chart below, Tencent's average repurchase price continued to decline, while the total repurchase amount remained stable, which means that the number of shares repurchased by Tencent continued to increase.
In addition to the above-mentioned reasons, pleasing shareholders is also the main motivation for buybacks of listed companies.
HSBC Holdings (00005.)hk）is a good example.
During the epidemic in 2020, due to the restrictions of UK regulatory requirements, HSBC (00005HK) suspended its dividend payment, causing its share price to substantially ** below HK$30. During this period, the major shareholder Ping An of China (02318HK) has repeatedly urged HSBC to spin off its fastest-growing and most profitable emerging markets business for a separate listing in order to eliminate the adverse effects of regulatory oversight in mature markets such as the UK.
In response to this situation, HSBC has taken measures such as restructuring and restructuring to increase revenue, reduce costs, and optimize its capital structure for dividends and buybacks to appease shareholders.
With the resumption of dividends and increased buybacks, its share price has accumulated nearly 37% this year, and has more than doubled from the low level in 2020 to more than HK$60. The implementation of these measures has led to a significant increase in the share price of HSBC and effectively responded to the demands of major shareholders.
Who's buying back more?
Finet observed that since the beginning of this year, many listed companies have adopted a large-scale repurchase strategy. From the perspective of the scale of the repurchase amount, the more significant ones are Tencent and AIA (01299.HK), Xiaomi Group-W (01810HK), Kuaishou-W (01024HK), China Want Want (00151HK), China Petroleum & Chemical Corporation (00386.).HK) and ESR (01821.), an integrated logistics real estate operator in the Asia-Pacific regionHK) and so on.
From the perspective of the repurchase amount, Tencent, which has a market value of nearly HK$3 trillion, is undoubtedly the most bold, and the repurchase amount since the beginning of this year may have reached HK$42.2 billion. It was followed by AIA-R (81299.).HK), the repurchase amount may be HK$26.3 billion.
However, it should be noted that although Tencent has the largest repurchase amount, due to Tencent's large size, the HK$40 billion fund is only equivalent to 1 of its current market valueThat's about 4%, and AIA's HK$26.3 billion buyback amount is equivalent to 3% of its current market capitalization7%, more than double that of Tencent.
Finet found that large listed companies with mature financing channels generally take advantage of their market value to provide options for their employees and senior managers to stimulate their performance, or issue convertible bonds to obtain financing with lower bond interest (but greater loss of shareholders' equity). The exercise of options and the conversion of convertible bonds will increase the number of issued shares of a listed company.
Listed companies can cushion the dilution of existing shareholders' equity by buying back shares, so not all share buybacks can play a role in increasing shareholders' equity.
Finet summarized the number of opening shares and current shares of the above-mentioned large-scale repurchase companies, and found that in terms of the scale of the number of issued shares, AIA and HSBC have a larger repurchase intensity than Tencent. AIA's current number of issued shares is 3 fewer than it was at the beginning of the year24%, while HSBC has 474%, far better than Tencent's 063%。
It is worth noting that HSBC's buybacks cover the whole world, not only on the Hong Kong ** market, but also from other exchanges, such as the London Stock Exchange. From this month's data alone, it can be seen that in just six trading days, HSBC repurchased 21.99 million shares in the non-Hong Kong ** market, with a repurchase amount of 13.4 billion pounds, or about 13HK$1.2 billion;At the same time, 15.27 million shares were repurchased in the Hong Kong ** market, or about 9HK$1.3 billion.
With the highest market share of HSBC's life insurance business in Hong Kong, Ping An has sufficient reasons to request a spin-off, and under the pressure of its major shareholder, Ping An, HSBC not only actively buys back, but also actively pays dividends.
In the first three quarters of this year, HSBC has declared quarterly dividends totaling 0$43 (about 3.)HK$36), compared with 0$27, an increase of 5926%。The company also plans to complete a US$3 billion (HK$23.4 billion) buyback by February 21, 2024.
In addition, HSBC may complete its ** Canadian operations in the first half of 2024 and consider paying 0$21 (about 1.)HK$64), which is the reason why its share price has been able to buck the market this year.
It should be emphasized that in addition to the primary listed companies in the Hong Kong ** market, which are required to disclose repurchase data in accordance with regulatory regulations, there are also many companies listed in the Hong Kong ** market as a secondary listing. These companies repurchase shares in their primary listed markets for the benefit of all existing shareholders. However, since there is no need to disclose buyback data on a daily basis in Hong Kong**, the buybacks of these companies are often overlooked. For example, Alibaba-SW (09988.)HK) is one example.
According to the summary of Finet,Alibaba (BABA.).us）In the March, June and September quarters of this year, it repurchased US$1.9 billion, US$3.1 billion and US$1.7 billion of shares, respectively, for a total amount of US$6.7 billion, or about HK$52.3 billionIn the first three quarters, it has far exceeded Tencent's total buyback scale of HK$42.2 billion this yearThis is equivalent to 369%。
In addition, Alibaba still has a buyback quota of $14.6 billion, equivalent to 1,139., after buying back a large number of sharesHK$900 million and valid until March 2025. At the same time, the company announced its first dividend of 0. per share in the September quarterThe $125 dividend brings the total dividend to US$2.5 billion, equivalent to HK$19.5 billion, which is much more generous than Tencent.
Summary
Buybacks by listed companies do not necessarily mean positive, and investors should first think deeply about the company's stock price and fundamentals. By analyzing the fundamentals of a listed company, if it is found that its current price is much lower than its actual value, then it may not be a wise decision for management to use cash buybacks. Therefore, when considering a buyback of a listed company, investors should comprehensively evaluate the value and prospects of the company in order to make rational investment decisions.
Judging from the above-mentioned vigorous buyback of listed companies, the stock prices of these listed companies are under pressure mainly because of the loss of funds due to concerns about geopolitical risks and lack of confidence in the prospects of the markets in which these listed companies operate, and the current valuations of these listed companies are much lower than those of other international peers.
Judging from the current management status of these listed companies, they all have one thing in common: open source and reduce expenditure, high-quality development - low-key development at the low level of the market is not a good thing, if it can maintain a stable and prudent business style and maintain fundamentals, its repurchase should be a well-thought-out and reasonable consideration, rather than a reckless move to exchange traffic for a short term for a long term.
Under the influence of capital flows, the valuations of some high-quality blue-chip companies may be over-adjusted. However, this overkill also presents a good investment opportunity for discerning investors.
In addition, listed companies repurchase shares when the stock price is low, which can provide some support for the stock price, which is conducive to stabilizing market confidence.
Author: Mao Ting.