The number of businesses listed in the Chinese mainland to have repurchased their own shares so far this year has climbed 20 percent from a year earlier to 891, according to Securities Daily.
Publicly traded companies have spent a combined CNY68.4 billion (USD10 billion) buying back stock, the report said today, citing analysts. Though the Chinese stock market has slumped in 2022, the buybacks demonstrate a recognition of corporate value and are conducive to stabilizing the stock prices of the firms involved, it added.
A-shares, those traded on the mainland’s stock markets, have “undergone periodic adjustments since the beginning of the year,” the report quoted Li Qiusuo, an analyst at China International Capital, as saying.
The Shanghai Composite Index closed at 3,258.06 on Aug. 19, down 10.5 percent from the end of last year, after previously reaching a low of 2,863.65. The Shenzhen Component Index closed at 12,358.55 points on Aug. 19, down 7.3 percent from the end of 2021, having fallen as low as 10,087.53.
“The overall valuation of A shares has been at a record low, especially around late April,” Li said. “In this context, listed companies repurchased a larger amount of shares compared with the same period last year.”
Nearly 300 of the companies, or more than 30 percent of those that repurchased shares, work in the fields of electronics, medicine and biology.
The shares of such firms have suffered relatively large declines this year, and repurchases will help boost market confidence, according to said Dong Zhongyun, chief economist at AVIC Securities. Buybacks can enable them to offer share options to strengthen the bond between the firm and its core team and technical personnel, boosting team cohesion and corporate competitiveness.
Most companies that repurchased shares this year intend to use the shares for employee stock ownership plans or equity incentive plans, while others bought them back them for cancellation, market value management or profit compensation.
Buybacks can help listed companies optimize their capital structure, enhance corporate value, cut agency costs for shareholders, and reduce the risk of hostile takeovers, said Tian Xuan, associate dean of Tsinghua University PBC School of Finance.