Chinese internet giants buying back own shares to boost market value amid stock rout

Beijing [China], April 3 : Chinese internet giants are buying back their own shares at a record pace, aiming to boost their market value amid a historic stock rout in the world's second-largest economy, CNN reported.
Alibaba Group (BABA) announced Tuesday that it had bought back USD 12.5 billion of shares from the US and Hong Kong markets, representing 5.1 per cent of its outstanding shares, in the fiscal year ended March 31.
That would mark the biggest share repurchase by a Chinese tech company in the past year.
In the first quarter alone, Alibaba spent USD 4.8 billion in buybacks, its second biggest quarterly repurchase in history.
Notably, a share buyback usually triggers an increase in price because there will be fewer shares available on the market.
Alibaba's stock has lost more than a quarter of its value in the past year.
The tech giant's move comes at a time when Chinese regulators have been asking listed companies to repurchase shares to stabilise market confidence.
Since reaching their peak in 2021, China's stock markets have suffered a protracted slump, with more than USD 4.5 trillion in market value having been wiped out of the Shanghai, Shenzhen and Hong Kong bourses.
"Alibaba's decision signals confidence in the company's future prospects and demonstrates management's belief in the underlying value of Alibaba's shares," the managing partner of SPI Asset Management, Stephen Innes, said.
However, whether the move will give a long-term boost to the share price depends on various factors, including broader market conditions, investor sentiment towards Chinese stocks and Alibaba's ability to execute its growth strategies effectively, he added.
The Hangzhou-based company has signalled it would buy more. In February, it raised its share buyback plan by another USD 25 billion through March 2027, as reported by CNN.
Alibaba has joined a series of Chinese tech companies that have ramped up share buybacks in the past year.
Meanwhile, Tencent spent a record 49 billion Hong Kong dollars (USD 6.3 billion) repurchasing shares in 2023, more than it had spent in total over the past decade, according to the company's public records.
Last month, the gaming and social media giant pledged to "at least double" the size of its share repurchase to over 100 billion Hong Kong dollars (USD 12.8 billion) in 2024.
Tencent's share price has slumped 20 per cent in the past 12 months.
Other Chinese companies -- including Meituan, Kuaishou and Xiaomi -- have also ramped up share buybacks in the past year, according to CNN.
Overall, companies listed in Hong Kong spent 126 billion Hong Kong dollars (USD 16.1 billion) buying back shares in 2023, the highest on record, according to Chinese financial data provider Choice.
Tencent alone accounted for about 40 per cent of total share buybacks in the Hong Kong market.
The firms listed in mainland China repurchased 120 billion yuan (USD 16.6 billion) worth of stocks, more than doubling the amount spent in 2022, according to government statistics.
These efforts are part of a wider campaign by Beijing to draw a line under the stock rout.
In February, the government pumped money into stocks via the country's sovereign wealth fund and replaced the head of its securities regulator in an apparent attempt to appease public anger.
Even though, these efforts appear to have bought Beijing some relief, as the Shanghai and Hong Kong markets have rebounded more than 10 per cent from their recent lows in early February. But they don't address the underlying challenges the economy faces, CNN reported.
"Investors are worried about China's economic slowdown, particularly amid challenges such as debt levels, property market risks, and demographic shifts," Innes said.
Additionally, the global selling of Chinese assets, driven by geopolitical tensions or concerns about regulatory uncertainties, has further pressured Chinese share prices.
While share buybacks can potentially boost investor confidence by signalling management's belief in the company's future prospects and its commitment, their impact on reviving global investor confidence in Chinese stocks may be "limited in isolation," he said.