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Goldman, Morgan Stanley predict who’s next


Asia has witnessed a wave in stock buybacks. Analysts at the bank say this trend will not stop any time soon.

Chinese tech giant AlibabaLast week, it was stated that the company will raise its share buyback program from $15 billion to $25 billion. Telephone maker XiaomiJD Health’s online health arm JD announced Tuesday that it will buy back up to 10 million Hong Kong dollar ($1.28 billion) while JD Health said it would purchase back shares up to 3 billion Hong Kong Dollars.

These stocks shot skywards when the news broke.

Ben Silverman from Verity, an investment consulting company director said that Chinese companies have been acting in the same way as American counterparts and are announcing stock buybacks on weak points to boost investor confidence while their business growth slows.

This is how share buybacks work. When a company purchases its stock, it reduces the public trading volume.

A buyback could push each share’s value higher as some metrics commonly used for evaluating stock prices are distributed across smaller shares. The stock may look attractive as a result.

This trend doesn’t only apply to Chinese tech companies. British banks HSBCInsurance giant AIAJapanese automaker ToyotaStock buybacks have been announced by the company in recent weeks.

Stock buybacks are showing an ‘accelerating trend’

Tencent had been speculated to follow, though markets disappointed that the Chinese gaming giant didn’t announce a recent buyback.

Tencent had to make an announcement about a buyback. This was probably due to Alibaba’s positive reaction and its buyback price,” he said. Neil Campling is head of media, technology and telecom research for Mirabaud Equity Research.

“[Tencent] did note their own stock price has dropped significantly too – which may be a sign that they would consider a buyback, so I don’t think that possibility should be ruled out in its entirety,” he added.

Nomura stated that a mix of “reasonably strong balance sheets” and stock valuations will lead to higher share buybacks. Japanese investment bank Nomura said that the trend suggests potential for higher shareholder returns.

We believe this is the theme that will be central in the coming weeks, particularly after the rally in shares. [U.S.-listed Alibaba]It had increased its share buyback program to USD10bn,” stated the note dated March 24, 2004.

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According to Morgan Stanley’s analysis, which included data for 2014-2021, the markets will respond favorably to buybacks. This includes U.S.-listed Chinese stock, as well as A.shares or stocks that are listed on the mainland.

Analysts at the investment bank said that US-listed Chinese equity reacted positively to A-shares and Hong Kong listing.

Best stocks for buybacks

Morgan Stanley screened stocks for buybacks by looking at a variety of criteria, including company valuations that were “heavily discounted”, large market caps, strong fundamentals and balance sheet strength.

Below are the 20 most popular stocks in Morgan Stanley’s stock selection, sorted according to market capitalization.

Kweichow Moutai
China Mobile
Wuliangye Yibin
Mindray Bio-Medical
China Tourism Group Duty-Free
Shanxi Xinghuacun Fen Wine Factory
Jiangsu Hengrui
Anta Sports Products
Cosco Shipping
Foxconn Industrial Internet
Gree Electric Appliances
Nari Technology

Goldman Sachs also reviewed stocks that are likely to be involved in stock buybacks. The bank stated that it was focusing on those companies who have a track record of making share buyback announcements in a March 25 letter.

Goldman explained that while cash-rich, high-profit growth stock stocks seem to be in a good position to buy back shares, companies without a track record of buyingbacks frequently do not make announcements about repurchases even when they are cash-rich. This is why the focus was on those with such moves.

These are the 10 most popular Japanese stocks listed by Goldman Sachs. They have been sorted according to market capitalization. The companies have announced buybacks in the five of the past six fiscal years – but have yet to announce any in fiscal year 2021:

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