Shares may stabilize, unlocking listed firms' true value, boosting recovery

The stock buyback and increased holding plans announced on Monday by some listed State-owned enterprises and industry giants will inject more confidence into the A-share market, buoying its performance, experts said on Tuesday.

The plans were collectively announced just five days after China's sovereign wealth fund increased its stakes in the country's four largest commercial banks.

Industry giants including Baoshan Iron & Steel Co Ltd, COSCO Shipping Holdings Co Ltd and China Petroleum & Chemical Corp announced their stock buyback plans on Monday.

Another seven industry giants, including video surveillance firm Hangzhou Hikvision Digital Technology, China Mobile and chipmaker China Resources Microelectronics Ltd, announced Monday night they will increase holdings in their own companies. The total value of these buybacks and increased holdings will be no less than 7.4 billion yuan ($1 billion), according to the announcements.

Liu Chenming, chief strategist of TF Securities, said that stock repurchases and increased holdings will help stabilize share prices by sending positive signals to the secondary market. Such moves will prevent stock prices from deviating from the companies' true value due to undervaluation.

More importantly, the recent wave of stock buybacks and increased holdings can be considered positive signals that the economy is recovering and market expectations are rising, said Liu.

The benchmark Shanghai Composite Index climbed 0.32 percent on Tuesday while the Shenzhen Component Index closed 0.15 percent higher. A-share insurers reported the biggest average daily increase of 1.57 percent on Tuesday, followed by the average 1.49 percent gain of securities brokerages.

Qin Peijing, chief strategist of CITIC Securities, said large-scale buybacks had boosted market sentiment as well as share prices in the past when the market was at a nadir.

As of Friday, 1,368 A-share listed companies had announced their stock repurchase plans so far this year. Among them, 1,035 had completed or implemented buybacks, with a total value of about 111.6 billion yuan.

Four buyback indexes jointly rolled out by the Shanghai Stock Exchange and China Securities Index were released on Tuesday, which market mavens believed would focus market attention on stock repurchases and drive more companies toward buyback announcements.

The China Securities Regulatory Commission, the country's top securities watchdog, said in August that share repurchase or buyback conditions will be relaxed, which will be part of efforts to further invigorate the capital market and boost investor confidence.

The A-share market liquidity has been improving, as seen from recent buybacks and slowdown in the reduction of major shareholders' holdings amid China's counter-cyclical adjustments, said Qin of CITIC Securities.

Investors who had adopted a wait-and-watch stance can now consider gradually increasing their holdings in the A-share cyclical sector, technology firms and companies with high returns and sustainable sound business performance, he said.

Some 42 A-share companies disclosed on Monday that their controlling shareholders, actual controllers and relevant shareholders such as directors, supervisors and senior executives, voluntarily promised not to reduce their holdings of the companies' shares.

In addition, Central Huijin Investment, an arm of China's sovereign wealth fund, on Wednesday increased its stake in the country's four biggest commercial banks and will continue such investments in the next six months.

Market confidence will recover on Central Huijin's move while more capital will flow into the A-share market, said Qin.

Thus, multiple positive factors facilitating the A-share market have been adding up, including China's improving economic fundamentals and the slowdown in the interest rate spikes in the United States, he said.

As investment bank Goldman Sachs discovered, commercial banks, insurance companies and securities firms usually led the rebound after Central Huijin increased its holdings in the past.

In its latest report, Goldman Sachs analysts wrote they are still overweight on A shares, thanks to the alignment between supportive policies and China's growth objectives, including self-sufficiency, building an electric vehicle supply chain and mass market consumption.