A tsunami of stock buybacks has rattled Asia, and analysts predict it will continue with more companies.
for example, AlibabaThe Chinese e-commerce giant said this week it would increase its share repurchase program from $15 billion to $25 billion, while Xiaomi this week announced a buyback of up to 10 billion Hong Kong dollars ($1.28 billion).
Meanwhile, JD Health, JD’s online healthcare division, said it would buy back 3 billion Hong Kong dollars worth of shares.
Basically, what happens is that when a corporation repurchases its stock, the number of publicly traded shares is reduced — and that’s how share buybacks work.
Since many of the popular measures used to evaluate a stock’s price are short spreads across shares, buybacks can push the price of each share upward. As a result, the stock may look more attractive.
This trend is not limited to the Chinese IT giants. In recent weeks, British bank HSBC, insurance giant AIA and Japanese manufacturer Toyota have all announced stock buybacks.
However, China’s tech equities have been falling since last year, due to regulatory action in the country as well as tensions between the US and China, among other things.
In this case, Morgan Stanley recently said that according to its analysis, the tendency for Chinese companies to announce buyback plans is seen against the backdrop of broader Chinese equity valuation depreciation.
“We believe this trend will continue for a long time as long as it is strengthened [China Securities Regulatory Commission] Last week’s statement explicitly encourages listed companies to do share buybacks clearly encourages listed companies to do share buybacks,” said Morgan Stanley.
Now, Tencent Next is expected, even though markets were disappointed when the Chinese gaming giant didn’t announce a recent buyback.
As reported, one industry insider believes that Tencent noted that their own stock price also dropped significantly — which could be a sign they’ll be considering a buyback — So the possibility should not be completely ruled out.
However, Morgan Stanley selected stocks that are best suited for buybacks based on a set of criteria, including balance sheet strength to support the buyback, “heavily discounted” company valuations, a large market cap, and Contains strong fundamentals.
Morgan Stanley’s top stocks ranked by market capitalization include Quicho Mutai, Alibaba, JD.com, China Tourism Group Duty-Free, Xiaomi, Foxconn Industrial Internet, and a few others.
Goldman Sachs Also looked for companies that were likely to engage in stock buybacks. It noted in a March 25 report that it focused on companies with a history of share buyback announcements.
Goldman Sachs’ top Japanese equities listed by market capitalization include KDDI, Fujitsu, Tokyo Gas, Toho, Hirose Electric and others.
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