Large share buybacks look unlikely, say experts
Updated: 2013-05-07 09:59
By Yu Ran in Shanghai (China Daily)
The stock market is unlikely to see a surge of listed companies increasing their own holdings, often a sign that shareholders are gaining confidence in the market and that they consider their stock undervalued, according to experts.
"The slowdown of the economy in 2012 caused a slump in the performance of certain listed companies, causing some share prices to drop. Company performances are expected to continue to be weaker this year," said Hu Zhuowen, an analyst from Orient Securities.
"There are not many companies increasing their holdings at the moment, but in comparison far fewer listed companies are decreasing the holdings," said Hu.
Experts consider share buybacks are normally an indication that a company's management thinks the shares are undervalued, especially after a stock is stung by a sharp price fall.
The company can buy shares directly from the market, or give its shareholders the option to offer their shares directly to the company at a fixed price.
"The shareholders of certain listed companies have increased their holdings recently to show their confidence as the market had increased gradually, after hitting recent historic lows," said Wang Jianhui, chief economist at Southwest Securities Co Ltd.
However, some experts suggested more shareholders of listed companies could be tempted to increase their holdings.
Baosteel, the nation's largest listed steelmaker, announced a share repurchase program in September, worth 5 billion yuan, over the following months.
Up to May 2, the group had already bought back more than 807 million shares, worth 3.85 billion yuan, according to figures released by Baosteel on Monday.
Baosteel generated 1.63 billion yuan in net profits in the first quarter, a 33.3 percent year-on-year increase. The steel maker's net income rose 41.1 percent year-on-year to 10.39 billion yuan.
A shareholder in Tangshan Sanyou Chemical Industries Co bought 1.88 million shares in Baosteel on the secondary market, or 0.1 percent of the total shares, on April 26 and said he plans to increase his holdings to less than 2 percent in the next 12 months, according to the announcement from Tangshan Sanyou.
"An increase in holdings and the buyback of shares will become a trend in the near future as more companies gain confidence as the economy continues to recover," said Zhang Yonghui, a partner with Adfaith Management Consulting.
Zhang added that adjustments made to the shareholding structure could be recognized as a sign that more enterprises are looking forward to seeing positive growth in the market.
"Longer-term, share prices will increase slowly with large capital inflows, and as more blue chip stocks with plenty of money try to increase their holdings," said Zhang.