Chinese firms are reluctant national team players

Buying call. Chinese regulators are reassembling a squad of domestic investors to help prop up the country’s frail stock market. A record number of listed firms led by battery giant Contemporary Amperex Technology (CATL) have joined the effort by repurchasing their own shares. Yet their relatively tepid spending so far this year suggests corporate support is half-hearted at best.

The benchmark Shanghai Composite Index has dropped more than 10% in the past six months despite Beijing’s multiple policy moves to revitalise the $10.5 trillion market. Wealth fund Central Huijin said in late September it will raise its controlling stakes in major state banks as well as buying exchange-traded funds in the coming six months. Last week, the China Securities Regulatory Commission said it will entice more long-term capital to invest in mainland equities. It’s reminiscent of the “national team” of patriotic investors that assembled to try to counter the country’s 2015 stock market crash.

Chinese companies appear to be joining the gang. At least 1,145 firms listed in Shanghai or Shenzhen have repurchased about 65.9 billion yuan ($9 billion) worth of their own shares by the end of October, Securities Times reported this week. That’s only a modest increase on 2022, when about 1,100 companies spent up to 60 billion yuan on share buybacks. A year-end hurrah is still possible, though, as 488 companies have pledged in recent months to spend up to 100 billion yuan. Major shareholders in at least 460 firms have also promised to raise their stakes.

Nevertheless, private sector heavyweights appear far less enthusiastic. The $26 billion Gree Electric Appliances, China’s biggest air-conditioner maker, announced last month that its newest buyback scheme will cost no more than 3 billion yuan. Back in 2021, the company said it would buy up to 15 billion yuan of its Shenzhen-listed shares.

CATL has pledged to repurchase up to 3 billion yuan of its own stock, equivalent to just 0.3% of its total market value. But unlike more established peers, which are in a position to return excess capital to shareholders, CATL is investing heavily in its fast-growing business. Investors may wonder whether buying shares is the best use of its scarce cash resources.

It is hardly surprising that some Chinese firms are launching share buybacks in a display of patriotic duty. Their half-hearted response so far, however, suggests not everyone is buying into the notion that the stock market is bottoming out.

Context News

A record number of 1,145 Chinese firms have repurchased about 65.9 billion yuan ($9 billion) worth of shares listed in Shanghai and Shenzhen so far this year, Securities Times reported on Nov. 1. The buyback rush underlines investment confidence in China’s stock market, the state-run financial newspaper suggested. Chinese listed firms spent about 60 billion yuan on share buybacks in 2022, Securities Times reported earlier this year. Regulators in Beijing have been encouraging state funds and insurers to buy Chinese stocks. The China Securities Regulatory Commission on Nov. 1 said it will encourage more mid-to-long term capital to “actively participate” in the equity market.

(Source: Reuters Breakingviews)