Chinese internet giants are snapping up their own shares to boost the value of a sluggish stock market

Chinese internet giants are snapping up their own shares to boost the value of a sluggish stock market

Chinese internet giants are buying back their shares at a record pace, as they try to boost their market value amid a historic stock decline in the world’s second-largest economy.

Alibaba Group (BABA) announced on Tuesday that it has bought back $12.5 billion of shares from the US and Hong Kong markets, representing 5.1% of its outstanding shares, in the fiscal year ended March 31.

That would mark the biggest share buyback by a Chinese tech company in the past year.

In the first quarter alone, Alibaba spent $4.8 billion in buybacks, the second largest buyback quarter in history.

Stock buybacks usually trigger price increases because there will be fewer shares available in the market.

Alibaba shares have lost more than a quarter of their value in the past year.

The tech giant’s move comes at a time when Chinese regulators have asked listed companies to buy back shares to stabilize market confidence.

China’s stock market has been in a prolonged slump since its peak in 2021, with more than $4.5 trillion of market value wiped off the Shanghai, Shenzhen and Hong Kong exchanges.

“Alibaba’s decision shows confidence in the company’s future prospects and demonstrates management’s belief in the fundamental value of Alibaba shares,” said Stephen Innes, managing partner of SPI Asset Management.

But whether the move will provide a long-term boost to share prices depends on a variety of factors, including broader market conditions, investor sentiment toward Chinese stocks and Alibaba’s ability to effectively execute its growth strategy, he added. The Hangzhou-based company has signaled it will buy more. In February, it raised its share buyback plan by another $25 billion through March 2027.

Alibaba has joined a string of Chinese tech companies that have ramped up share buybacks in the past year.

Tencent is spending a record 49 billion Hong Kong dollars ($6.3 billion) to buy back shares in 2023, more than it spent 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 buyback to more than 100 billion Hong Kong dollars ($12.8 billion) by 2024.

Tencent’s share price has declined 20% in the past twelve months.

CNN has reached out to Alibaba and Tencent for comment on their buyback plans.

The main campaign
Other Chinese companies – including Meituan, Kuaishou and Xiaomi – have also ramped up share buybacks in the past year.

Overall, Hong Kong-listed companies are spending 126 billion Hong Kong dollars ($16.1 billion) on share buybacks in 2023, the highest on record, according to financial data provider China Choice. Tencent alone accounts for about 40% of the total share buybacks in the Hong Kong market.

Listed firms in mainland China bought back shares worth 120 billion yuan ($16.6 billion), more than double the amount spent in 2022, according to government statistics.

The effort is part of a broader campaign by Beijing to draw a line under the stock rout.

In February, the government pumped money into stocks through its sovereign wealth fund and replaced its chief securities regulator in an apparent attempt to calm public anger.

The effort appears to have relieved Beijing, as Shanghai and Hong Kong markets have recovered more than 10% from recent lows in early February. But they do not address the fundamental challenges facing the economy.

“Investors are concerned about China’s economic slowdown, especially amid challenges such as debt levels, property market risks and demographic shifts,” Innes said.

In addition, the global sell-off of Chinese assets, driven by geopolitical tensions or concerns about regulatory uncertainty, has further depressed Chinese stock prices.

While share buybacks have the potential to boost investor confidence by signaling management’s faith in the company’s future prospects and its commitment, its impact on restoring global investor confidence in Chinese stocks may be “limited in isolation,” he said.