Hong Kong-listed and Chinese companies are dipping into their retained earnings and splurging on stock buybacks and bumper dividend payouts as their domestic markets remain in a slump, according to new data.

With rising interest rates in the US and languishing stock markets in both China and Hong Kong, dividend payouts by Chinese firms and stock buybacks on Hong Kong’s HSI are at historic highs. What’s more, investors expect the trend to continue throughout the rest of the year.

In 2022, Hong Kong stock buybacks amounted to HK$104.9 billion ($13.4 billion) while the Hang Seng Index overall plunged 18%, Hang Seng Index said in a note this week. Year-to-date, the trend has continued with over HK$70 billion of stock repurchases made by listed companies on the island despite an 11% slump in the index over the same period.

Wednesday, HSI index ended at a four-week low on fears of sustained tightening by the Federal Reserve. Hang Seng Index forecasts that the buyback trend will continue to over HK$90 billion of stock buybacks by year-end, which is 4 times the 5-year average.

“This extraordinary high-level of buyback value might reflect that the corporates believe their listed shares in Hong Kong are undervalued in 2022 and YTD2023, leading to their “buy on dip” during the period,” Hang Seng Index wrote in the note.

The buybacks mirror a trend reported by Bloomberg of record dividend payouts by China’s biggest firms, which amounted to 1.5 trillion yuan ($206 billion) so far this year, surpassing 2022’s 1.27 trillion yuan. State-owned behemoths such as Bank of China Ltd. (OTC:BACHY) and PetroChina Co Ltd. (OTC:PCCYF) are both yielding over 6% in dividend returns.

China’s CSI 300 Index is down 4.3% this year and companies trade for an average P/E of 13 there right now. This represents over a 50% fall from the index’s 5-year high reached in February 2021.

Among the Hong Kong companies that have been buying back their beaten-down shares during 2023 which are also listed on US exchanges are beverage conglomerate Yum China (NYSE:YUMC), tech giant Tencent (OTC:TCEHY), HSBC Holdings Plc. (NYSE:HSBC), Hanison Construction Holdings Ltd. (OTC:HACOF), Bank of East Asia Limited (OTC:BKEAY), Cosco Shipping Development Co Ltd (OTC:CITAF), sportswear maker Li Ning Co. Ltd. (OTC:LNNGY) and Dongfeng Motor Co. Ltd. (OTC:DNFGY).

Share buybacks have been occurring daily since the start of the year and frequently rise into the hundreds of millions and even billions of US dollars on any given day, according to data provided by Hang Seng Index.

This month’s biggest stock repurchaser is Tencent which is currently repurchasing over $50 million of its own stock a day as part of the continuation of a similar stock buy-back initiative it undertook last year. In China, the year’s largest stock repurchaser is Ant Group which announced in July that it would buy back 7.6% of the entire company for around $5 billion.

The continued spending splurge follows headline share buybacks by other China-listed giants over the course of last year:

Xiaomi Corp. (OTC:XIACY) announced in August 2022 that it intended to repurchase up to $1.3 billion of its own shares in Hong Kong. This stock repurchase appears to be still ongoing according to Hang Seng Index data.
BYD Co Ltd (OTC:BYDDY) repurchased over $200 million of its own stock off mainland Chinese exchanges in April 2022.
In January 2022, China Mobile said that it would repurchase $1.6 billion of its Hong Kong shares.

As for China’s CSI, the beaten-down HSI also trades at a historically low P/E ratio of 10.

With 87% of Hong Kong listed companies now in the process of undertaking share buybacks, Hang Seng Index said that the exchange represented the largest destination in the world for corporate stock repurchases in 2023.

Disclaimer: Author holds no positions in any of the stocks mentioned.

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