Date
12 December 2018
Hong Kong has seen a surge in corporate share buyback activity amid a view that many stocks got oversold in recent months. Photo: Reuters
Hong Kong has seen a surge in corporate share buyback activity amid a view that many stocks got oversold in recent months. Photo: Reuters

Share buyback surge points to bottoming of HK equities

The Hang Seng Index has trended downward since hitting an all-time high at 33,484 on January 29. The benchmark is now more than 7,500 points, or 22 percent, off its peak. While market sentiment remains lackluster, corporate share buyback activity has however picked up.

As of November 13, there had been more than 3,300 share buyback deals this year, involving a total amount of HK$49.5 billion.

The number of share buyback deals ranks second highest in history, right behind 4,200 deals during the 2008 financial crisis. And the value of such transactions is expected to hit a record this year.

The surge in share buyback activity reflects the view that some stocks have been oversold, and that the company managements believe it is a good time for buyback.

Historical data shows that when the number of share buyback deals rises above 500 a month, the Hang Seng Index would stand a good chance of hitting the trough, such as in September 2011 and January 2016.

The gauge exceeded the 500 mark and reached 702 last month.

Yet there are also cases when the bottoming process took longer. For instance, the benchmark index bottomed out four months later after the share buyback deal number spiked close to 1,000 in October 2008.

Whether Hong Kong equities can stage a recovery sooner or later would probably depend on how the US China trade war plays out.

A drawn-out dispute would certainly keep the market down for another extended period. But if the issue is resolved, it wouldn’t be surprising to see a sharp recovery in the Hang Seng Index.

This article appeared in the Hong Kong Economic Journal on Nov 15

Translation by Julie Zhu with additional reporting

[Chinese version 中文版]

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RC

Hong Kong Economic Journal chief economist and strategist

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