China’s tech stocks: Buybacks give a booster shot March 24, 2022
In mid-March, Chinese tech stocks saw a rout.
Shares of Alibaba Group Holding and Tencent Holdings in Hong Kong lost billions of dollars, on heightened concerns about an industry crackdown, Covid-19 outbreaks, and China’s position on the Ukraine conflict.1
Losses deepened after JPMorgan Chase downgraded 28 Chinese internet stocks including Alibaba, Tencent Holdings and Meituan to underweight, calling them “uninvestable” over the next six to 12 months due to rising geopolitical and macro risks.
The Hang Seng Index fell 5.7 per cent to 18,415.08 at the close of trading on March 15, the lowest level in 10 years and bringing the losses this year to 21 per cent. The Tech Index sank 8.1 per cent, following an 11 per cent plunge on March 14. And the Shanghai Composite Index lost 5 per cent, the most since a 7.7 per cent rout on February 3, 2020.
But just over a week later, Chinese tech stocks were back in the limelight. Now, Chinese technology companies are offering stock buybacks to help lift the market from a 10-year low.
The trend may have the seal of official approval, after a year of clampdowns and smashed valuations2. These moves come as China is encouraging publicly traded companies to buy back their shares and money managers to invest in their own funds, offering investor-friendly policies to bolster the world’s second-largest capital market amid an unprecedented rout.3
Separately, the China Securities Regulatory Commission (CSRC) said on its website late on March 16, that the government will continue to widen access to the capital market and maintain Hong Kong’s market stability through stronger cross-border collaboration.
The CSRC’s statement came soon after a meeting chaired by China’s economic tsar Liu He, in which he pledged to uplift the market and the economy.
In another sign that China wants to do everything it can to ensure the good health of its tech companies, Beijing has also softened its stance on the US authorities’ demands on audit disclosures from China’s US-listed firms.
Chinese regulators have asked some of the country’s US-listed firms, including Alibaba, Baidu and JD.com, to prepare for more audit disclosures, sources said, as Beijing steps up efforts to ensure domestic companies remain listed in New York.4
This comes as China’s regulators are considering a proposal to allow their US counterparts to inspect audit working papers of some Chinese firms that do not gather sensitive data.
Looking at buybacks, Goldman Sachs said that Hong Kong-listed companies ploughed a record US$5 billion into stock buybacks last year and have already spent US$800 million through mid-February.5
“Strong buybacks tend to precede positive index returns,” it said last month.
And it added that when buybacks reached 0.05 per cent of market free-float, the market gained as much as 9 per cent in the following 12 months, it said, citing its study of the Hang Seng Composite Index since 2013.
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If you have further enquiries, please contact your trading representative or make an appointment to visit your nearest Phillip Investor Centre.
About the author
Elston Soares is an editor with the Phillip Securities Research team.