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Feeling downbeat on Hong Kong stock market? Follow buy-backs as tonic for higher returns, Haitong says
- Hang Seng Index members gained 19 per cent on average one year after repurchases, according to Haitong Securities, based on five waves of buying since 2008
- The latest episode, fuelled by Alibaba and Tencent buy-backs, suggests the trend could persist
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Investors feeling downbeat about the local stock market’s wavering performance this year may look up to stock buy-back programmes for a boost. They may foreshadow a run-up based on past precedents.
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Shares of Hang Seng Index members gained 19 per cent on average one year after buy-backs, according to Haitong Securities, based on five waves of such stock repurchases since 2008. The Tech Index members rallied by 53 per cent on average, using simulated data going back to 2015.
From Alibaba Group Holding to Li Ka-shing’s flagship CK Asset Holdings, Hong Kong-listed firms have spent HK$42 billion (US$5.4 billion) buying back their own stock since May amid China’s crackdown, Haitong calculated. That exceeded the HK$7.6 billion to HK$26.1 billion range in the previous five rounds.
“Historically, all sectors of the Hong Kong market stabilised after the buy-back waves,” Xun Yugen, a strategist at the Shanghai-based brokerage, said in a report on Wednesday. “Information technology stocks typically could fetch relatively high absolute and above-average returns.”
The unprecedented buy-backs this time appear to have the seal of approval from Beijing officials who, alarmed by a plunge in prices last month, recommended such action last month among measures to boost investor confidence. The Hang Seng Index swung 40 per cent in between its slump to a decade-low in mid-March.
Buy-backs are typically deemed as a market-support mechanism because of extreme undervaluation, or a lack of investment options to deploy excess cash.
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