Hong Kong-listed companies are taking advantage of falling stock prices to buy back their own shares.
At least 80 have repurchased stock in January, the most in four years, and another 42 snapped up shares last month.
The last two times buybacks in 2008 and 2011 were this widespread.
The Hang Seng Index climbed 18 percent over the next 12 months.
The benchmark’s 8.8 tumble this year is excessive relative to earnings prospects, Bloomberg reports, citing HSBC Holdings Plc.
The index trades at nine times reported profits, near the cheapest since the depths of the global financial crisis and the biggest discount to global shares in 15 years.
“There appears to be quite a good relationship — a month before the market bottoms, share buyback activity surges,” Steven Sun, head of Hong Kong and China equity research at HSBC, said.
“Company insiders such as senior management should know their own business outlook and the intrinsic value of the company better than the average investor.”
HSBC estimates Hong Kong-listed companies have bought back shares worth a total of HK$58 billion (US$7.5 billion) since July.
Zijin Mining Group Co. and Want Want China Holdings Ltd. were among companies repurchasing shares in January.
Zijin, China’s biggest gold miner, has rallied 42 percent since the end of that month, while snack maker Want Want climbed 9.7 percent.
The Hang Seng gauge has advanced 1.6 percent.
While an increase in share buybacks may indicate cheap valuations, it may also reflect managers’ doubts about the business outlook, according to Daniel So, a strategist with CMB International Securities Ltd.
“Such activity doesn’t always signal a bottom as companies don’t time the market,” So said.
“Companies are spending their cash on buybacks instead of expanding their businesses.”
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