Goldman, Morgan Stanley predict who’s next

Asia has seen a wave of share buybacks and banking analysts say it won’t stop anytime soon.

Chinese tech giant Alibaba said last week it will increase share buyback program from $15 billion to $25 billion. Phone manufacturer Xiaomi On Tuesday announced a buyback of up to HK$10 billion ($1.28 billion), while JD Health, JD’s online healthcare arm, said it would buy back up to up to 3 billion Hong Kong dollars.

The news sent the shares of those companies soaring.

“Chinese companies are behaving similarly to their American counterparts by announcing massive stock buyback programs about the size of the market,” said Ben Silverman, research director at investment consulting firm Verity. weakness in an attempt to shore up investor confidence as their business growth slows.”

Here’s how stock repurchases work: when a company buys back its own shares, the move reduces the number of shares that are publicly traded.

Buybacks can push the price of each stock higher because some common metrics used to gauge stock prices are spread over fewer shares. As a result, the stock may look more attractive.

This trend is not limited to the Chinese tech giants. Bank of England HSBC Bankinsurance giants AIA and Japanese car manufacturers Toyota also announced a share buyback in the past few weeks.

‘Trend acceleration’ in share buybacks

There was much speculation that Tencent could be next, although markets were disappointed when the Chinese gaming giant didn’t announce its acquisition recently.

“The market certainly expected Tencent to announce the acquisition. I think this is mainly because Alibaba has had and the positive price response to it,” he said. Neil Campling, head of technology, media and telecommunications research at Mirabaud Equity Research.

“[Tencent] have noted that the price of their own stock has also dropped significantly – that could be a sign that they will consider a buyback, so I don’t think that possibility should be completely ruled out,” he said. added.

Nomura said the combination of a generally modest stock valuation and a “reasonable” balance sheet should spur stock buybacks. The Japanese investment bank said the trend indicates a higher likelihood of shareholder returns.

“We think this topic will likely be the focus in the coming weeks, especially after the shares of [U.S.-listed Alibaba] after it boosted its share buyback program to $10 billion,” the March 24 note said.

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In the short-term, markets will respond favorably to buyback announcements, especially for US-listed Chinese stocks, according to Morgan Stanley’s 2014-2021 data analysis on major stocks. such shares as A-shares, or mainland-listed shares.

“US-listed Chinese stocks reacted most positively compared to Hong Kong-listed and A-shares,” said investment bank analysts.

Stocks in the best position to make a buyback

Morgan Stanley has selected the stocks that are best positioned to make buybacks based on a list of criteria: balance sheet strength to support buybacks, “highly discounted” company valuations, market capitalization, and market capitalization. Fairly large field and strong fundamentals.

Here are the top 20 stocks by Morgan Stanley’s pick, sorted by market capitalization:

Kweichow Moutai
Chinese phone
Wuliangye Yibin
Mindray Bio-Medical
Tax-free China tourism group
Shanxi Xinghuacun Fen . Winery
Jiangsu Hengrui
Anta sports products
Cosco shipping
Foxconn Industrial Internet
Gree Electric Appliances
Nari . Technology

Goldman Sachs also screens stocks that are likely to carry out a share buyback. In a March 25 note, the bank said it focuses on companies with a track record of share repurchase announcements.

“While stocks rich in cash and strong earnings growth look particularly good for share buybacks, we note that companies with no record of buybacks generally do not disclose purchases. back, even if it’s cash rich,” Goldman said, explaining why it’s focused on companies with such a history of moves.

Here are the top 10 Japanese stocks from Goldman Sachs, sorted by market capitalization. Companies that have announced acquisitions in five of the past six fiscal years – but have yet to announce any for fiscal 2021:

Dai-ichi Life
Daiwa Securities Group
Tokyo Gas
Sekisui Chemical
Hirose Electric

Michael Bloom of CNBC contributed to this report.

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