Surging Hong Kong Stock Buybacks

Hong Kong’s benchmark Hang Seng Index has lost 13% since its January high as trade tensions between China and the US worsen.  But Hong Kong listed companies are buying their own shares at the fastest pace in more than 2 years.

At least 70 companies repurchased their stocks this month (July), the most since January 2016, after 56 firms did so last month.  The last 2 times buybacks surged by similar levels in 2016 and 2011, the Hang Seng Index climbed at least 18% over the next 12 months.

When Hong Kong share repurchases saw a similar jump in January 2016, the Hang Seng Index had fallen to the lowest in over 3 years, as a slide in the city’s dollar spurred concerns over capital outflows and A shares entered a bear market.  The index then bottomed out in February, and rebounded 29% over the following 12 months.

So far, 123 companies have sought to repurchase their shares since the Hang Seng Index fell from its January high.  There was 152 firms buyback their own shares in 2017.

Surging buybacks are usually a signal that the current share price discounts a company’s real earnings growth potential.  It can be a signal to the market that a rebound could be near.

Reference:

Bloomberg, 2018-07-26, Jeanny Yu, Surging Hong Kong Stock Buybacks May Signal Rebound on Horizon.