What happened
China's stock market rally continued to get a second wind this week, with Alibaba Group Holding (BABA 0.64%) stock gaining 4.9% as of 12:12 p.m. ET, JD.com (JD 1.13%) rising 4% (also its second day of gains), and Tencent Music Entertainment Group (TME 1.20%) leading the charge higher with a 7.6% gain.
Stock buybacks are the reason.
Image source: Getty Images.
So what
Citing a report by Goldman Sachs, the South China Morning Post noted today that "Hong Kong-listed companies ploughed a record US$5 billion into stock buybacks" as tech stock prices plunged last year. Furthermore, so far in 2022, Chinese tech stocks have "already spent US$800 million through mid-February."
Alibaba's announcement yesterday of a $10 billion boost in its stock buyback plan -- to $25 billion -- is certainly the highest-profile move in this direction so far. But as the SCMP reports, smartphone maker Xiaomi just announced a $1.3 billion buyback of its own, and JD.com announced its buyback -- $3 billion worth -- back in December. Tencent Music, by the way, has not announced a buyback increase. Indeed, it's been pretty mum on the subject ever since announcing a $1 billion buyback a year ago. Then again, that was the company's "biggest ever" share buyback, as Reuters pointed out at the time, and Tencent Music may not be done spending all of its authorized cash just yet.
Now what
Speaking of "just yet," the buyback announcements themselves may not yet be done coming out. As SCMP observed, "the 66 members of the Hang Seng Index [have] US$2.4 trillion of cash on their balance sheets," and deploying this cash on stock buybacks "may have the seal of official approval, after a year of clampdowns and smashed valuations."
Quoting Jingxi Investment Management Chief Investment Officer Wang Zheng, SCMP noted that a wave of stock buyback announcements "would be a signal that stocks have bottomed out." And if that's the case, then it could even turn into a self-fulfilling prophecy, as buybacks by companies (that see their stocks as undervalued) could convince other investors that those stocks are undervalued -- launching a widespread wave of rebounding valuations.
With that prospect in sight, it's little wonder investors are buying back into the Chinese stock market today.
