Everyday Opinion | Boosting Confidence with Share Repurchases Also Optimizing the Long-Term Ecosystem of A-Shares
Opinion by Du Hengfeng, Chief Commentator at Every Day
Since April, the A-share market has seen a surge in share repurchases. Data from Wind (WanDe) shows that between April 6th and 28th, a total of 232 listed companies carried out share repurchase operations, with a cumulative amount of 275.6 million shares and a total value of 91.65 billion yuan; meanwhile, over 260 companies have announced shareholder increases related to this move. This move not only timely addresses investor concerns but also greatly boosts market confidence. After experiencing a brief sharp adjustment, the A-share market has quickly rebounded, with the Shanghai Composite Index having largely recovered its losses by April 7th, demonstrating the resilience and vitality of the market.
The significance of share repurchases goes far beyond short-term support for the market. As a long-term institutional arrangement, it has been optimizing the A-share ecosystem in an increasingly evident manner. Firstly, concentrated share repurchases can have a positive impact on the A-share trend, becoming an important reference for investors. The pace of repurchases and increases is basically synchronized, allowing observers to gauge its long-term effects. Looking back at history, prior to October 2018, due to inadequate regulations, share repurchases were not prevalent in the A-share market. However, after the relevant rules were improved, the total amount of share repurchases exceeded 49 billion yuan in 2018, far exceeding the 80 billion yuan seen in 2017.
What's worth noting is that October 2018 was a low point for A-shares. From this point on, the WanDe All-A Index began a 3-year upward trend, with cumulative gains exceeding 76%. Looking at recent developments, in December 2023, the China Securities Regulatory Commission (CSRC) issued revised rules governing share repurchases, lowering the trigger threshold and relaxing conditions for repurchases. Following this, between December 2023 and February 2024, A-shares again saw a surge in share repurchases. This period coincided with the market's seasonal low point. These experiences demonstrate that whenever concentrated share repurchases occur, investor confidence is reinforced, and the market trend remains stable.
Furthermore, the long-term value of share repurchases lies in enhancing the value of listed companies. Institutional statistics show that after announcing a share repurchase plan, absolute and relative returns are both positive; one-year and two-year returns are also positive and significantly higher than short-term (30-day and 90-day) returns, fully demonstrating the impact of share repurchases on company values. A closer analysis reveals that actively repurchasing shares (e.g., for cancellation, stock-based incentives, or asset management purposes) yields higher returns compared to passive repurchases (e.g., canceling stocks, performance guarantees). This indicates that companies with better operating quality are more willing and able to engage in proactive share repurchases, which in turn drives their value growth. Value growth is the result of investors' "hand-voting" process, effectively improving the efficiency of capital market resource allocation.
As institutional supply continues to improve, the sustainability of share repurchases has received stronger guarantees. On one hand, the People's Bank of China (PBOC) has established new policy tools that provide ample and low-cost funding support for share repurchases. On the other hand, the landing of the Chinese version of the "Pegged Fund" has effectively reduced the risk associated with share repurchases, further stimulating the enthusiasm of listed companies. These favorable factors will continue to contribute to a long-term upward trend in the market, and investors can see this for themselves, feeling the improvement in the market environment.