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Li Zhao, Charting Specialist, Hua Bu, Content Analyst, and Julie Chien, M&A/IPO Analyst, contributed to this article. The original version appeared first on the Bloomberg Terminal.
Background
Stock buybacks are emerging as a last resort for Tencent Holdings Ltd. and other Chinese companies to stem losses in share prices as the Hang Seng Index extends its decline into a fifth year.
Video game and web giant Tencent repurchased a record HK$10 billion ($1.3 billion) of its Hong Kong-listed shares in December and continued to accelerate buying into 2024. Across Hang Seng members, 709 buybacks were executed in 2023, 20% more than in 2022. Meanwhile, a long-short strategy targeting companies executing buybacks has returned about 20% over the past year.
The issue
Tencent’s stock has suffered since Chinese regulators imposed restrictions on in-game spending and a ban on rewards for frequent log-ins in December. The company has seen additional struggles in its Riot Games unit, announcing layoffs affecting 530 employees and abandoning plans to build a Twitch rival.
Mentions of Hong Kong stock buybacks on the terminal, meanwhile, surged in the fourth quarter of 2023. The spikes tended to coincide with bottoms in the Hang Seng index as seen in March 2016, October 2018 and October 2022.
Tencent led Hong Kong buybacks in 2023, spending more than $6 billion, but was far from the only company repurchasing stock. Hang Seng Index members including AIA Group Ltd., Xiaomi Corp., HSBC Holdings Plc and China Petroleum & Chemical Corp. spent $17 billion collectively on buybacks last year. The momentum has continued into 2024, with total buybacks in the first six trading days exceeding the full-year value from 2020.
The 1Y Share Buyback Long-Short factor has a total return of 20% over the past year and has achieved more than 110% over the past 10 years. The returns are calculated by going long on the 20% of companies with the biggest share buybacks and short on the 20% with the smallest.
“With depressed valuation and corporates trying to demonstrate their financial ability, this buyback behavior will be more structural rather than cyclical,” said Jason Lui, head of east Asia strategy at BNP Paribas.
Tracking
Use Bloomberg’s new Buybacks function, at BBK, to assess a company’s buyback strategy and run NT, CACT and FTW for further analysis. Run NSUB FFMSTORY to subscribe to functions-based stories.
For more information on this or other functionality on the Bloomberg Professional Service, request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.
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