The biggest buyback wave in history comes, smart money enters, and historical experience showsWhen the buyback wave ends, it is also when the stock market hits bottom.

On the evening of October 28th, Ping An Insurance Dong Mi said that the company has a clear intention to choose an opportunity to promote share buybacks. The matching of the articles of association and the new company law will be evaluated, while paying attention to the subsequent supporting provisions.

On the same day, Xinhu Zhongbao announced in the evening that the repurchase plan was revised from "no less than RMB 300m and no more than RMB 1 billion" to "no less than RMB 500m and no more than RMB 1.5 billion". "

Mr. Wang Xuehai, chairman of Renfu Pharmaceutical, suggested that the company should start the relevant procedures of stock repurchase as soon as possible, and suggested that the company should buy back the company's shares by centralized bidding through the secondary market, with a total repurchase amount of not less than 500 million yuan and no more than 1 billion yuan. the repurchase price is determined in accordance with relevant regulations, the repurchased shares will be used for the purposes prescribed by laws and regulations, and the specific repurchase plan will be studied and formulated by the company's board of directors.

Fang Chaoyang, chairman of Seiko Steel structure, proposed to buy back the company's shares with its own funds or self-raised funds of not less than RMB 50 million yuan and no more than RMB 300 million yuan, with a repurchase price of no more than 3.50 yuan per share. The repurchased shares will be used for the purposes prescribed by laws and regulations.

From the point of view of the amount of buybacks, there are not a small number of listed companies that make large repurchases. Data show that the repurchase limit of 1 billion yuan and more than 1 billion yuan reached 10 stocks, of which Shaanxi Coal Industry (601225.SH), Midea (000333.SZ) and focus Media (002027.SZ) ranked in the top three with 5 billion yuan, 4 billion yuan and 3 billion yuan respectively.

This is just a microcosm of the biggest buyback wave in A-share history.

Stock repurchase means that a listed company buys back a certain amount of outstanding shares from the stock market. The repurchased shares may be retained as inventory shares and no longer belong to outstanding shares, or they may be written off directly to reduce the registered capital of the company. Inventory stocks can be used to issue convertible bonds, implement employee stock ownership plans or equity incentives, and can also be sold to increase the funds of the enterprise when needed.

Compared with cash dividend, share buyback is a better way for listed companies to repay investors.Through the repurchase of shares, investors can hold more gold, such as the corresponding earnings per share, net profit and equity will increase, and the corresponding investment value will also increase.

For this buyback boom, a number of listed companies have said that due to the influence of external market factors, the company's stock price has fluctuated greatly recently, and the company believes that the current stock price can not correctly reflect the company's value. In order to safeguard the interests of shareholders, enhance investor confidence, promote the long-term and stable development of the company, and promote the company's stock market price to return to reasonable value, the company launched a buyback plan.

Large-scale share buybacks are mainly concentrated when the market is in a low position or when the market continues to fall.Since 2009, there have been three rounds of buybacks of listed companies in the A-share market, namely, from October 2012 to June 2013, from August 2015 to June 2016 and from November 2017.

Policy supports buyback

On October 26, the sixth meeting of the standing Committee of the 13th National people's Congress examined and adopted the decision of the standing Committee of the National people's Congress on revision (hereinafter referred to as the "revision decision"). Special amendments have been made to the provisions of Article 142 of the Company Law on share repurchases of companies, which shall enter into force as of the date of promulgation. The revised Company Law complements and improves the situation in which share repurchases are allowed.

The revised Company Law makes it clear that under six circumstances, a company may acquire shares of the company, including:

(1) to reduce the company's registered capital; (2) to merge with other companies that hold shares of a limited company; (3) to use the shares for employee stock ownership plans or equity incentives; (4) to require the company to acquire shares due to shareholders' objection to the resolution of merger or division made at the shareholders' meeting; (5) to use the shares to convert convertible corporate bonds issued by listed companies. 6. Listed companies are necessary to safeguard the value of the company and the rights and interests of shareholders.

The CSRC believes that the "revision decision" has further consolidated and improved the basic system of the capital market, and provided strong legal support for promoting the stable and healthy development of the capital market, which is of great significance. It will help to improve the quality of listed companies, improve the financial capital management system, deepen financial reform, safeguard the rights and interests of medium and small investors, and promote the sustained, stable and healthy development of the capital market. Improving the share repurchase system, increasing the situation of share repurchase, and allowing listed companies to maintain the overall value of the company and the rights and interests of shareholders of medium and small investors will help to thicken the net assets per share and consolidate the asset base of valuation. we will improve the endogenous stability mechanism of the capital market and promote the stable operation of the capital market as a whole.

In the early stage, after public consultation on the amendments to the Company Law, the Shanghai Stock Exchange, under the guidance of the CSRC, began to formulate and revise the relevant supporting business rules and announcement format guidelines for share repurchase, in order to guide listed companies to perform their information disclosure obligations in accordance with the rules and regulations, and to help companies handle specific business related to share repurchase, such as share repurchase transactions, transfer, inventory, cancellation, transfer and creditor protection arrangements. At present, the relevant share repurchase related supporting business rules, announcement format guidelines have been formed in the first draft. In accordance with the unified arrangements and arrangements of the CSRC, the Shanghai Stock Exchange will step up efforts to revise and improve it, and issue and implement it as soon as possible.

After the release and implementation of the "revision decision", listed companies in the Shanghai stock market responded on their own initiative, and the number of companies issuing repurchase plans and implementing repurchases in the Shanghai stock market increased significantly.In the two days since the release of the revision decision on October 26, 30 listed companies in the Shanghai stock market have disclosed the relevant announcements about share repurchase, of which 14 have disclosed share repurchase proposals or pre-plans, and 16 have disclosed the progress of share repurchase implementation.In this regard, the Shanghai Stock Exchange adheres to the concept of attaching equal importance to supervision and service, focusing on policy consultation and rule interpretation of the "revision decision". In particular, we should provide services such as information disclosure and business management for the share buybacks added in this "revision decision", support and guide listed companies to carry out share repurchases in accordance with the law, and safeguard corporate values and shareholders' rights and interests.

At the same time, the Shanghai Stock Exchange will also continue to strictly enforce the information disclosure requirements of the company, its controlling shareholders and Dong Jiangao, and prevent improper acts such as benefit transfer, insider trading and market manipulation through buybacks, so as to give full play to the positive role of the new share repurchase system and promote the stable and healthy development of the capital market.

Where does the buyback fund come from?

According to the old Company Law, the sources of share buyback funds encouraged by employees are limited, requiring that the funds used for acquisitions should be spent from the company's after-tax profits. For other repurchase cases, there is no clear stipulation on the source of repurchase funds.

Equity incentive can bind the long-term interests of employees and enterprises, for the overall value of the enterprise, equity incentive costs included in the period expenses or R & D expenses can also play a role in reducing the tax burden.

But at present, the proportion of listed companies implementing equity incentive in China is only about 10%. According to the statistics of the announcement date of the plan, from 2016 to the end of August 2018, the number of listed companies that have announced equity incentive plans in China is 242, 396 and 290 respectively. Although the number has increased, a small number of companies are still doing it.

The newly revised Company Law cancels the relevant regulation that the capital source of share repurchase encouraged by employees should come from after-tax profit, that is, it further liberalizes the capital source of share repurchase. This means that listed companies can use share buyback tools more flexibly for schemes such as employee equity incentives.

What are the ways of share buyback?

According to the measures for the Administration of the repurchase of Public shares by listed companies (for trial implementation), share buybacks may be carried out through centralized bidding, offer and other methods approved by the CSRC. The offer method usually requires a premium offer, and the exchange centralized bidding method is more widely used by listed companies.

In terms of the repurchase price, it is required that the price of the repurchased shares of the listed company shall not be the price limited by the increase of the company's shares on the day of trading.

In terms of repurchase time, listed companies shall not entrust share repurchase during the following trading hours:

Collective bidding at the opening; within half an hour before the close; there is no limit to the rise or fall of stock prices. Within 10 trading days prior to the regular report or performance announcement of the listed company KuaiBao; from the date of the occurrence of major events that may have a significant impact on the company's stock trading price or in the decision-making process, to 2 trading days after disclosure in accordance with the law; other circumstances prescribed by the CSRC.

At the same time, listed companies shall not issue shares to raise funds during the period of share repurchase.

The driver of the bull market in US stocks

China Merchants research newspaper shows that stock buybacks originated in the United States in the 1950s, and stock buybacks have increased significantly since the 1990s, which has been favored by many companies.

In the nearly 10 years after the financial crisis, the share buybacks of listed companies in the United States have been huge, with an average annual repurchase of nearly $300 billion from 2010 to 2012, and an average of about $440 billion from 2013 to 2017, of which nearly $470 billion was repurchased in 2017.

2018 is the carnival year of US stock buybacks, and the scale of buybacks has reached a record high. according to incomplete statistics, as of July, the share buybacks of US listed companies in 2018 have exceeded $500 billion, higher than the level for the whole of 2017. According to Goldman Sachs Group, US share buybacks may reach $1,000bn in 2018, an increase of 46 per cent over the same period in 2017.

According to the analysis of Guojin Securities, the motivation of US stock buyback mainly includes improving corporate profitability indicators, sending a signal to the market that stocks are undervalued, as a substitute for dividends, and so on.

First of all, improve the EPS and improve the company's profitability indicators. Listed companies reduce their share capital by repurchasing outstanding shares, thereby improving their earnings per share.

Second, send a signal to the market that stocks are undervalued. Because of the serious information asymmetry between the external investors and the company, when the management of the company thinks that the stock price of the company is undervalued, the management often hopes to send the undervalued message to the market by buying back the stock. so that investors can re-evaluate the intrinsic value of the company, thus pushing up the company's stock price.

Thirdly, reduce the agency cost of the company. In modern corporate governance theory, corporate managers and owners are usually separated, and corporate management, as agents, will encroach on the interests of shareholders and over-invest for their own interests. especially when the company has abundant free cash flow. Stock buyback can reduce agency costs, solve over-investment and other problems, and improve the efficiency of free cash flow.

Buybacks can also be used as a substitute for dividends. In many cases, share buybacks are similar to cash dividends, in which companies pay cash to shareholders, but share buybacks are relatively more flexible, because once a company chooses a stock dividend in the United States, then the future annual market will look forward to the company's differentiation plan, and the stock buyback will not let the market form such expectations.

At present, in the mature capital market, share repurchase has become an important capital operation tool, which plays an important role in optimizing enterprise capital structure, raising stock price, implementing stock option plan and so on.

Before 2018, the repurchase of A shares is mainly based on the incentive stocks held by the repurchase turnover equity incentive object, with more times but a small amount. From 2014 to 2017, the total amount of shares voluntarily repurchased by domestic listed companies was only 1.5% of the cash dividend in the same period. In the same period, US and UK listed companies repurchased 4127 shares and 2086 shares respectively, and the ratio of the total repurchase amount to their cash dividends in the same period was 43.57 per cent and 49.50 per cent respectively.

Since the beginning of this year, the buyback of A-share listed companies has shown a rising trend, the repurchase scale of A-share this year has exceeded any previous year, and listed companies have taken the initiative to buy back frequently. Anxin strategy predicts that with the substantial optimization of the system, the number and amount of share buybacks of A-share listed companies are expected to further increase in the future.

Anxin strategy believes that the optimization of the repurchase system is conducive to the deepening of value investment, A-share listed companies not only have financing attributes but also have long-term investment returns. Listed companies with good operation and healthy financial conditions will be able to stabilize their share prices through buybacks in the future, so that investors can better share the company's growth dividend. Having sufficient cash reserves and good financial position is the guarantee of the ability to implement buybacks, while a lower valuation level will strengthen the company's willingness to repurchase. With the support of current policies, it is also relatively likely to successfully implement share buybacks in the future.