Recently, a number of Chinese A-share listed companies, including Sinopec, Sungrow Power, China Merchants Shekou, Muyuan Foods, and COSCO Shipping, have announced their receipt of loan commitment letters or signed loan agreements with banks for the purposes of stock repurchases and equity investments. This trend highlights a growing enthusiasm for stock buybacks among A-share listed companies, driven by efforts to enhance valuations.
Enhancing buyback motivation has been facilitated by new financial tools. The People’s Bank of China recently announced the introduction of a refinancing program for stock buybacks, with an initial quota set at 300 billion yuan. This follows the rollout of China’s first monetary policy tool aimed at supporting the capital market: the securities, funds, and insurance companies’ swap facility. The emergence of these new instruments is expected to bolster the willingness of listed companies to engage in buybacks and equity investments.
According to analysts at Industrial Securities, these two innovative monetary policy tools work on both the asset and funding sides, providing additional capital to the market and encouraging various market participants to increase their stakes in equity assets. Regulatory support for the capital market is likely to gradually rebuild investor expectations and confidence, which could enhance the overall risk appetite among investors.
Dongxing Securities also highlighted in their research report that these two innovative tools are crucial measures by regulators to support the stable development of the stock market, contributing incremental funds to improve market liquidity and boost investor confidence. As listed companies and major shareholders increasingly engage in buybacks and equity investments, they will not only have a greater capacity but also the inclination to effectively manage market value, ensuring that shareholder rights, company market capitalization, and shareholder structure are optimized in a positive feedback loop. This approach could enhance the long-term investment value of listed companies, while also improving returns for investors.
Financial data terminal iFinD reports that as of October 21, over 2,000 listed companies have conducted buybacks this year. The announcements from these companies indicate that their buyback and equity investment activities stem from confidence in their future development and recognition of long-term investment value.
In an interview with China News Service, Qin Huanmei, a researcher at the Shanghai International Financial Center of Shanghai University of Finance and Economics, mentioned that the current surge in A-share buybacks reflects an increasing awareness of investment value among listed companies and a strengthening of sustainable buyback practices. Company buybacks and significant shareholder purchases help optimize corporate capital structures, drive valuation increases, and enhance investor returns, which in turn attracts new capital to the A-share market. The notable rise in both the quantity and amount of buybacks and investments by major shareholders also indicates a robust confidence in future long-term growth.
It is worth noting that after repurchasing shares, companies typically have three options: utilizing them for equity incentives, directly canceling them, or keeping them in inventory for potential future resale.
Yang Delong, chief economist at Qianhai Kaiyuan Fund, explained that using repurchased shares for equity incentives effectively motivates company executives, especially when stringent conditions are set to drive long-term growth. Directly canceling repurchased shares can reduce the total number of circulating shares, thereby increasing earnings per share, which is beneficial for stock price appreciation. However, if repurchased shares are held in inventory with the intention of future resale, this could be disadvantageous for investors. Therefore, Yang suggests that companies should either directly cancel repurchased shares or implement equity incentive programs.
Qin Huanmei emphasized that with several policies being rolled out, the enthusiasm for stock buybacks and equity investments by A-share listed companies is likely to continue rising, with various stakeholders working together to inject vitality into the market through tangible financial support, thereby improving the inherent stability of the capital market.
