Amid a massive foreign capital exodus, Chinese listed companies have been buying back their own shares and incurring huge losses.
More than 1,300 listed companies and various equity funds in China have made frequent share buybacks in China A-shares and Hong Kong stocks this year, with a sharp peak at the end of October.
Taiwan’s Central News Agency reported that only 22 of China’s 2,296 equity funds made a profit in the first 10 months of this year, with returns ranging from 0.1 percent to 26 percent. The remaining 99 percent lost money, with 50 companies losing 37 to 45 percent of their investments.
In Hong Kong, 208 companies have made share buybacks as of Nov. 2, with the total amount reaching HK$80.1 billion ($10.9 billion), the highest since buyback data has become available. The Shenzhen Securities Times reported that more than 90 percent of the listed companies in Hong Kong had repurchased shares at an average price higher than the current price, resulting in losses of HK$20.7 billion ($2.637 billion).
Among them, Chinese tech giant Tencent had a loss ratio of 36 percent, with a loss of HK$8.76 billion ($1.116 billion) as of Oct. 31. AIA Insurance had a loss ratio of 21.4 percent, with a loss of HK$4.4 billion ($561 million).
Furthermore, Alibaba announced a share buyback on March 22, increasing the size of the buyback from $15 billion to $25 billion, which will continue until the end of March in 2024, setting a record for the size of buybacks of Chinese stocks. On Oct. 21, Alibaba’s U.S. stock price hit a new low for the year, and by the close of trading on Oct. 24, it had fallen more than 12 percent.
CCP Controls Listed Companies to Manipulate Stock Market
With such a clear downward trend in the stock market, why would listed companies buy back large amounts of their own shares, knowing that it will result in huge losses?It appears that the Chinese Communist Party (CCP) is trying to control the financial market by manipulating the stock market through the listed companies under its control.
According to an analysis by Nikkei Asia on Oct. 31, more than two-thirds of the 1,526 Mainland China-listed companies trading on the Hong Kong Stock Exchange (HKEx) have so far amended their articles of association to include policy guidance from the CCP leadership. The amended clauses require that companies “provide necessary conditions for the activities of the Party” and “be highly consistent with the Party.”
Nikkei Asia also said that at least 153 of these companies mention Chinese leader Xi Jinping in their articles of incorporation.
These changes reflect the fact that during Xi’s leadership, the CCP began to exert enormous pressure and control over these companies.
At the same time, the China Securities Regulatory Commission (CSRC) made recommendations to relax the rules around share repurchases. The CSRC claimed that some of the conditions for share repurchases were too strict and not sufficiently convenient. It recommended shortening the window period and lowering the threshold for repurchases to encourage listed companies to implement share repurchases and increase shareholding by directors, supervisors, and senior management.
On Nov. 4, the Shenzhen Securities Daily reported that the new regulations have raised enthusiasm among enterprises to increase their holdings and buybacks, and the number of large single buyback plans has increased significantly. In the last two weeks, 35 listed companies in Shanghai and Shenzhen disclosed their plans to increase their holdings, and 47 companies disclosed their repurchase plans. The number of repurchase plans far exceeds that of the same period last year.
Downward Trend Continues
But despite the massive buyback scheme, Chinese stocks continue on a downward trend.The buyback amount of HK$78.9 billion ($10.052 billion) didn’t seem to stop the downward trend of Hong Kong stocks, according to a Nov. 1 report by the Shenzhen Securities Times. The average daily turnover of Hong Kong stocks in the last three months has shrunk to HK$97.9 billion ($12.472 billion), corresponding to the current market value of HK$30.8 trillion ($3.92 trillion), highlighting the low turnover.
Statistics show that fundraising activities in Hong Kong stocks slowed down significantly in the first three quarters of this year, with only 55 companies successfully listing IPOs, a 24.66 percent decrease from 73 companies in the same period last year. The amount raised by IPOs was only HK$73.2 billion ($9.326 billion), a significant reduction of 74.63 percent from HK$288.5 billion in the same period last year. Only 18 IPO projects raised more than $100 million, less than half of the same period last year.
On Oct. 19, HKEx announced that its third-quarter profit fell 30 percent year-on-year to HK$2.263 billion ($288 million), while revenue and other income fell 19 percent year-on-year to HK$4.318 billion ($550 million).
Hong Hao, the chief analyst of the Chinese market strategy of GROW Investment Group, told the Hong Kong-based ETnet News on Oct. 31 that the positions of foreign investors and Hong Kong securities firms in Hong Kong stocks have dropped significantly since July this year, and they have started fleeing the Hong Kong stock market since October. Their positions in Hong Kong stocks have dropped sharply from HK$80 billion to less than HK$5 billion this year.
