HK Equities: Buyback is the buzzword

Ben Kwok March 23, 2022 12:05

Nothing is more assuring to investors than shares buyback in the ever-dragging pandemic.

Take a case at the embattled Alibaba Group, which recovered from the shock of hitting as low as HK$71, a 76 per cent drop from its peak of HK$300 two years ago.

Yesterday the No.1 mainland e-commerce firm led the pack with an 11 per cent rebound after it further upped the shares repurchase amount to US$25 billion. Shares of Alibaba closed at HK$110.2, or about 55 per cent above its trough just last week.

The largest ever shares buyback provided a much-needed support to the new economy companies in a technology meltdown last week.

Xiaomi Corp also committed HK$10 billion for share repurchase yesterday.

Shares buyback has become a panacea for companies at the time of an investor confidence crunch in the wake of the Fifth Wave. Investors voted with their feet as they worried how Omicron would ruin the dynamic zero clearing policy and any hope on potential economic rebound despite most other major countries having adopted the “living with virus” strategy.

It is not clear how all these would play out, but share buyback seemed to provide a much-needed certainty at this critical time.

Share buyback has been an effective way to support share price because it signals the management confidence to use the company’s own financial resources to buy, and later cancel, shares after open market purchase. The reduced number of shares outstanding could enhance the earning per share, which is welcomed by investors.

Increasingly more United States companies have announced share buybacks instead of declaring more dividends. In Hong Kong, HSBC is the first to announce a major share repurchase program back in 2016. Last month, HSBC again pledged to further buy back shares worth up to US$1 billion.

Earlier this year, China Mobile, which raised a US$8.8 billion in Shanghai via a domestic A-share listing, vowed to buy back up to 2.05 billion shares, representing about 10 percent of its issued shares in Hong Kong. The world’s largest carrier by the number of mobile subscribers has outperformed the market since this year.

Likewise, AIA Group also announced a US$10 billion buyback program and actually started repurchasing shares this week.

In a choppy market, look for the buzz word – buyback.

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Ben Kwok

EJ Insight writer

Hong Kong

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