Buy Buy Buy A-Shares as 5 Ministries Support Buybacks

The Chinese government is pushing companies to repurchase shares with a 5 ministry policy blitz. Headlines are very bullish this weekend and forecast large buying on Monday. Not all are convinced though. Some are worried companies will announce large buybacks amid the propaganda blitz and then fail to follow through.

iFeng: A股重大利好！这轮回购潮再添一把火五部委修法清除回购障碍

The five ministries and commissions, such as the China Securities Regulatory Commission, recently revised and revised the "Company Law", intending to further improve the share repurchase system, to solve the problems of the current "Company Law", such as narrow scope of share repurchase, lack of decision-making procedures, and lack of treasury stock system.

“The key is to form a true repurchase,” a brokerage analyst told the China Times reporter. “After removing the obstacles to the share repurchase in the legislation, the follow-up depends on whether the supervision can keep up, whether it can stop some of the company's making fake repurchase commitment."

...The aforementioned brokerage analyst told the China Times reporter that some companies in the A-share market have announced the repurchase plan, but the stock price has continued to go low. It is obvious that investors do not buy it. The reason is difficult to say and investors. It does not matter if the listed company’s confidence in fulfilling the repurchase commitment is insufficient.

In the history of A-shares, there are many examples of throwing out repurchase plans when the stock market is down, but ultimately failing to fulfill them. For example, when the stock market crashed in 2015, Haitong Securities announced that it would repurchase A shares and H shares worth 21.6 billion yuan, but abandoned the plan a few months later, claiming to take into account the company's operations, liquidity, A decision made by the potential risk of a credit rating.

It's worth noting the government promoted buybacks earlier this year and buybacks were rising organically, but it didn't help the market.

iFeng: 星石投资袁广平：鼓励股份回购 释放托底信号

Enhance share repurchase operability

China Securities Journal: What changes will the draft bring to the share repurchase of listed companies?

Yuan Guangping: At present, listed companies have more restrictions on the repurchase of shares. On the one hand, there are limited situations in which repurchase can be implemented, and second, the implementation process is not simple enough. This draft has improved the above situation and enhanced the operability of share repurchase. The first is to increase the repurchase of shares: including for the employee stock ownership plan, the listed company is in line with the convertible corporate bonds, the issuance of the warrants for equity conversion, the listed company is necessary to maintain the company's credit and shareholders' equity , other circumstances stipulated by laws and administrative regulations; the second is to simplify the decision-making procedure for the implementation of share repurchase under the above-mentioned new circumstances; the third is to establish a treasury stock system to clarify the company's shares repurchased for specific circumstances, which can be in stock hold.

China Securities Journal: What is the repurchase situation of listed companies since this year?

Yuan Guangping: In terms of scale, the number of repurchased and repurchased shares of listed companies has risen sharply this year, especially in recent months. Since the beginning of this year, as of September 6, a total of 642 shares have been repurchased (345 in the same period last year), and the cumulative repurchase amount reached 23.6 billion yuan (only 5.2 billion yuan in the same period last year). The repurchase scale in the last 3 months reached 15.1 billion yuan. Compared with several rounds of repurchase since 2008, the scale of this repurchase has increased significantly. Since 2009, there have been three rounds of repurchase, namely: from October 2012 to June 2013, there were 49 repurchases with a scale of 7.8 billion yuan; from August 2015 to June 2016, there were 300 repurchases. The total scale is 10.8 billion yuan. Whether in terms of scale or quantity, this round of repurchase is stronger than in the past.

From the point of repurchase type, the main part of the stock repurchase in the past is the equity incentive repurchase, and the ordinary repo is relatively small. However, since 2018, as the market adjustment has increased, the general repurchase plan has increased even faster.

Repo often occurs in the bottom interval

China Securities Journal: What is the direct significance of the improvement of the repurchase system?

Yuan Guangping: The improvement of the stock repurchase system is expected to expand the scale of repurchase of A-share listed companies. Although the domestic stock market repurchase scale has risen sharply this year, it accounts for less than 0.05% of the A-share market value. From overseas experience, in the past 10 years after the financial crisis, the stock repurchase of US listed companies has been huge, from 2010 to In 2012, the average annual repurchase was nearly 300 billion US dollars; in 2013-2017, the average annual repurchase was about 440 billion US dollars, and the stock repurchase in 2018 has exceeded 500 billion US dollars. If the average annual repurchase is 400 billion US dollars and the total market value is 25 trillion US dollars, the average repurchase ratio of US stocks in recent years is about 1.6%.

China Securities Journal: What is the impact of stock repurchases on the trend of A shares?

Yuan Guangping: Stock repurchase can convey confidence to the market to a certain extent. From the historical experience, the repurchase tide often occurs in the bottom section of the A-share. The repurchase tide from October 2012 to June 2013 appeared near the bottom area of ​​the bear market in 2010-2014. The repo was just coincident with the lowest point of the Shanghai Composite Index; the repo during the period from August 2015 to June 2016 After the sharp correction of the stock market in June 2015, the Shanghai Composite Index hit the bottom of 2638 points in January 2016, and it was not until June 2016 that this round of repurchase began. However, considering that the current round of repurchase tides is close to the first two rounds of repo, it confirms that A shares are already at the bottom of the valuation. From the current repurchase tide duration, scale and market trading characteristics, the current market is close to the bottom range.

iFeng: 第一轮托底告捷 下周沪指最可能走势曝光

Xingshi Investment Analysis believes that the relevant departments encourage repurchase and release the bottom signal. Xingshi Investment pointed out that from the scale point of view, the number of repurchased and repurchased shares of listed companies has risen sharply this year, especially in recent March. Since the beginning of this year, as of September 6, a total of 642 shares have been repurchased (345 in the same period last year), and the cumulative repurchase amount reached 23.6 billion (previous year: only 5.2 billion). The repurchase scale in the last three months reached 15.1 billion yuan. . Compared with the tide of repurchase since 2008, the scale of this repurchase has increased significantly. Xingshi Investment believes that the improvement of the stock repurchase system is expected to expand the scale of repurchase of A-share listed companies. From the historical experience, the repo tide often occurs in the bottom section of A-shares, which can convey confidence to the market to a certain extent.

Secondly, the State Council responded to two market concerns concerning national enterprises and hundreds of millions of investors. The two statements of the National General Meeting on the 6th eased the anxiety of the whole market: First, “try to reduce the social security rate appropriately and ensure that the burden of the enterprise is not increased overall”; second, “the overall tax burden of venture capital will not increase”.

These two statements are timely clarification, correction and deployment of the hotspots of public opinion triggered by changes in tax collection and management. The purpose is to "inspire the vitality of the market and guide the society to anticipate better."

This is also the main reason for the Shanghai Composite Index to open higher in the morning, but the Shanghai Composite Index began to dive near midday. Xiangcai Securities analyzed that the market's risk is still there, and the wide-ranging shock is still the main theme of the recent market.

This is a more intense effort than seen earlier this year. Xinhua kicked off the propaganda in July: A-Shares Are Cheap, What Are Investors Afraid Of?

In August there was another propaganda effort and a focus on companies buying back stock.

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CSRC Tries to Calm Market With Reform, NDRC Says More Targeted RRR Cuts Coming

The country will implement policies to relax the control over the ratio of foreign investment in the securities sector, according to a statement from the China Securities Regulatory Commission (CSRC).

China will allow 51-percent foreign ownership of brokerages, futures dealers, and life insurers, and remove the cap entirely by 2021, according to a new negative list for foreign investment released in June.

The country will also make active preparations for launching the Shanghai-London stock connect program within the year, the CSRC said.

Efforts should also be made to amend rules on qualified foreign institutional investors to standardize and expand market access, it said.

The commission will continue to improve its systems for approving initial public offerings and supervising mergers and acquisitions while improving and resolutely implementing the delisting policies, the statement said.

It will also boost its capability of serving investment banks in a bid to explore the creation of investment banks with global competitiveness.

The Shanghai Composite Index lost nearly 7 percent in the week prior to the CSRC announcement. As of Friday, the index is down slightly from when CSRC made its policy blitz.