Major buybacks put spring back in A shares' step

A-share market investor confidence will be boosted and bourse performance will be buoyed amid record performance among listed companies' buyback plans, said experts.

According to market tracker Wind Info, over 1,900 A-share companies have announced their share buyback plans as of Monday. Among them, more than 1,600 companies have already carried out repurchases, with the total buyback value amounting to over 96.4 billion yuan ($13.3 billion), hitting a record and overtaking the full-year figure of 91.4 billion yuan seen in 2023.

A large number of industry giants have conducted share buybacks this year. Tongwei Group, the world's largest solar silicon provider, announced in late April a buyback plan of between 2 billion and 4 billion yuan. Video surveillance firm Hangzhou Hikvision Digital Technology released in April a repurchase plan of over 2.89 billion yuan while dairy giant Inner Mongolia Yili Industrial Group announced in late May it would repurchase no more than 2 billion yuan of its shares. Biotech company Wuxi AppTec and logistics giant SF Express have each announced 1-billion-yuan buyback plans twice so far this year.

Computer, medicine, electronics, and engineering equipment are the industries launching the most share buyback plans this year, according to Wind Info.

Zhang Qiyao, chief strategist at Industrial Securities, said that share buybacks will turn into an important positive signal for the market, as they reflect the companies' confidence in their profitability and income growth. Investors will thus derive positive sentiment on the companies' development.

Looking back on the previous rounds of drastic market fluctuations, A-share companies' collective share buybacks, which were promoted by supportive government policies, helped stabilize market performance and investor sentiment. The indexes usually picked up significantly after such repurchases, he said.

Related buyback policies have been optimized since the end of 2023, which have partly contributed to the record-high repurchases seen so far this year, Zhang said.

As the buyback scale expands in the A-share market, it can be seen that prices of companies announcing repurchase plans usually rise significantly, outperforming the benchmark indexes. Investors should keep a closer eye on these companies, especially as regulators have stressed the importance of share buybacks, he added.

The China Securities Regulatory Commission, the country's top bourse watchdog, released late last year its amended regulations for A-share companies' buybacks. Listed companies are encouraged to use repurchase tools according to relevant laws to provide returns to investors in an active manner, according to the new regulations.

The set of new guidelines released by the State Council — the nation's Cabinet — in April underlined the importance of listed companies' market value management. In specific, listed companies will be encouraged to cancel shares after repurchases.

Experts from TF Securities explained that the cancellation of shares after repurchase means that these shares will no longer circulate in the secondary market. Overall shares in circulation will therefore be reduced, and the company's financial indicators such as earnings per share, return on net assets per share, and dividends per share will likely increase as long as the current profit and dividend ratio remain unchanged. This will help increase the company's intrinsic value, they said.

Analysts from Great Wall Securities said that collective buybacks usually take place when the stock market is hovering around a nadir and market performance becomes lackluster. Repurchases will signal to investors that share prices are undervalued at the moment. Risk appetite will thus be elevated, they said.

The price-to-earnings ratio of the A-share market was around 16 times on Tuesday. The CSI 300 companies — 300 heavyweight companies trading in Shanghai and Shenzhen — saw their average PE stand at around 11.7 times, according to Wind Info. Both numbers were around very low levels compared with historical data.