Source: Securities Times

Hong Kong stock repurchases reached a record high in 2023. The repurchase amount reached HK$125.926 billion, up 20% year on year. Among them, Tencent's repurchase amount accounted for 40%, and the repurchase amount reached HK$48.4 billion. Entering 2024, the repurchase amount of Hong Kong stocks continued to reach a record high in January. As of the 26th, the repurchase amount reached HK$22.8 billion, a sharp increase of 226% over the previous year.

Hong Kong stock repurchase amounts continued to reach new highs, highlighting the new opportunities created by the adjustment of Hong Kong stock valuations. A Hong Kong stock analyst told the Securities Times reporter that the impact of repurchases on the market is positive, helping to increase investors' confidence in the company, while also helping to reduce market fluctuations and provide investors with a more stable and reliable investment environment.

The repurchase amount of Hong Kong stocks reached a new high in the first month of 2024

Hong Kong stocks did not perform well at the beginning of the year, and a number of listed companies made repurchases.

According to Wind data, as of January 26, 99 companies had repurchased shares, with a cumulative repurchase amount of HK$22.8 billion, compared with only HK$7 billion in the same period last year, a sharp increase of 226% over the previous year.

Among them, Tencent has taken action 13 times since this year, costing HK$9.8 billion, accounting for 43% of the total repurchase amount. It has been repurchased on the 13th in 19 trading days, making it a veritable “repurchase king” for Hong Kong stocks. In addition, Meituan made 8 repurchases, each with a repurchase amount of around HK$400 million. Xiaomi's repurchase amount reached HK$1.29 billion, and Kuaishou's repurchase amount was HK$413 million.

In order to increase the enthusiasm of listed companies to repurchase shares, the Hong Kong Stock Exchange has also introduced new rules exempting the repurchase limit period. According to Rule 10.06 of the Hong Kong Stock Exchange Listing Rules, HKEx's requirements for direct share repurchases by listed companies include, but are not limited to, the following:

• The repurchase price must not be higher than 5% or more of the average closing price for the past 5 trading days;

• Listed companies are not allowed to repurchase shares after learning insider information; listed companies do not repurchase within one month prior to the annual, semi-annual, quarterly, or any other interim results deadline (calculated earlier);

• Within 30 days after each share repurchase, it is prohibited to issue new shares to finance new shares and announce new share plans;

• Before the next trading day after repurchasing Hong Kong shares, listed companies must disclose the price and quantity of shares repurchased on the previous trading day.

Guidance letter GL 117-23 issued by the Hong Kong Stock Exchange in October 2023. Eligible listed companies can repurchase shares through an automatic share repurchase scheme throughout the share repurchase limitation period, but they need to apply for an “exemption” from the Hong Kong Stock Exchange. Exempted listed companies can eliminate the “quiet period” for share repurchases.

Key criteria adopted by the Hong Kong Stock Exchange when considering exemptions for listed issuers include:

• Broker arrangement: A binding contract should be signed with the broker, a broker independent of the listed issuer and its related parties should be appointed, and share repurchases can only be carried out through one broker;

• Clauses of the repurchase plan: The rationality of the period of the relevant plan should be proved, and there should preferably be a period of time between the first share repurchase after the establishment of the plan and the limitation period;

• Issuer size and share liquidity: Market capitalization of at least HK$10 billion, average daily turnover above HK$10 million;

• Trading restrictions: Transactions under the share repurchase plan shall be limited to 25% of the average daily trading volume for the previous 20 trading days, and participation in auction transactions during the opening and/or closing hours of the market shall be restricted;

• In addition to the above transaction restrictions, transactions under the Share Repurchase Program are subject to price restrictions imposed by the Listing Rules on all share repurchases (issuers are prohibited from buying back their shares on the Stock Exchange at a purchase price 5% or more higher than the average closing price of the stock in the five trading days prior to the shares).

According to the data, there are currently 4 Hong Kong stock companies that have applied for a quiet repurchase period exemption, namely Swire Co., Ltd., Yum China, Kuaishou, and AIA. These companies that have been exempted from the Hong Kong Stock Exchange will not be restricted by the repurchase rules until the results are announced, and they can continue to repurchase shares.

What to do with repurchased shares?

Stock repurchase generally refers to the act of a listed company using cash or the like to purchase back a certain amount of shares issued by the company. According to the requirements of the Hong Kong Stock Exchange and the Securities Regulatory Commission, the purchased shares will be directly cancelled or used as employee incentives.

And what are the benefits of repurchasing? First, after an enterprise buybacks up shares, the number of shares in circulation will decrease, so the shareholders' shareholding ratio will increase accordingly, and shareholders' rights will also increase accordingly. If dividends are carried out, the number of shares in circulation will increase accordingly.

The second is to implement a share incentive plan. Companies will indicate the origin of shares when announcing share incentive plans, so there is a possibility that they will be repurchased on the open market. Stock incentives are intended to motivate group employees to continue to make greater contributions to the company's future development and to retain talents beneficial to the company's development, but there are usually certain conditions.

Third, share buybacks in the short term may have a certain effect on stock prices, but in the medium to long term, fluctuations in stock prices are more affected by market changes and the company's own development; there is little connection between the two.

However, by sorting through the data, the reporter found that the total number of repurchases was compared with the Hang Seng Index over the same period, showing a negative correlation between the two. In other words, when the index falls, the repurchase amount increases, while when the index rises, the repurchase amount decreases, indicating that the repurchase amount will be affected by market conditions to a certain extent.

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