Hang Seng Index Corporation: Hong Kong stock valuations are relatively low, and the amount of repurchases by listed companies at the beginning of the year has reached a record high.

Recently, Hang Seng Index Company released a blog post stating that the undervaluation of Hong Kong stocks has triggered companies to buy back their own shares to support stock prices, and the trend of stock buybacks that emerged in the fourth quarter of last year continues to this day. The amount of Hong Kong stock buybacks reached a record high of 126 billion yuan last year, an increase of 20.1% year-on-year. By February 23rd of this year, the buyback amount had reached 29.8 billion yuan, 32.8% higher than the average level of the past 12 quarters, with 83% of the buyback amount coming from Hang Seng Index constituent stocks. A similar trend is also seen in the A-share market in mainland China, where the buyback amount reached 40.4 billion yuan in the fourth quarter of last year, a 75% increase year-on-year. Hang Seng Index Company stated that this indicates continued improvement in confidence among A-share and Hong Kong-listed companies before the release of their 2023 financial results (expected in late February or March), which will help boost market sentiment. For investors seeking to measure the performance of Hong Kong blue-chip stocks, capture potential market revaluation, and track the stock buyback theme, the Hang Seng Index is an ideal choice for the Hong Kong stock market index. The following is the original blog post: The amount of Hong Kong stock buybacks in 2023 reached a record high of 126 billion Hong Kong dollars, an increase of 20.1% year-on-year. According to Wind data, from the beginning of 2024 until now (as of February 23, 2024), the buyback amount in the Hong Kong stock market was 29.8 billion Hong Kong dollars, 32.8% higher than the average level of the past 12 quarters, indicating a continued trend of stock buybacks in 2024. A similar trend can also be seen in the A-share market in mainland China, where after regulatory authorities relaxed stock buyback policies, the market saw a buyback amount of 40.4 billion yuan in the fourth quarter of 2023, a 75% increase year-on-year. We believe that the trend of stock buybacks that emerged in the fourth quarter of 2023 continues to this day in 2024. This means that before the release of the 2023 financial results (mostly scheduled for late February or March 2024), confidence among A-share and Hong Kong-listed companies continues to improve, which will help boost market sentiment. For investors seeking to measure the performance of Hong Kong blue-chip stocks, capture potential market revaluation, and track the stock buyback theme, the Hang Seng Index is an ideal choice for the Hong Kong stock market index. The trend of stock buybacks in the A-share and Hong Kong stock markets continues, indicating ongoing improvement in confidence among listed companies and helping to boost market sentiment. In 2023, the Hong Kong stock market (represented by the Hang Seng Composite Index) fell by 13.8% year-on-year, while the amount of stock buybacks in the Hong Kong market reached a historical high of 126 billion Hong Kong dollars (Figure 1), an increase of 20.1% year-on-year, mainly due to undervaluation leading companies to buy back shares to support stock prices and also in anticipation of a potential revaluation of their stock prices. As of now in 2024 (as of February 23, 2024), according to Bloomberg data, the valuation of the Hong Kong stock market is 9.6 times the expected earnings, one standard deviation below the 5-year average of 9.7 times. The buyback amount in the Hong Kong stock market has already reached 29.8 billion Hong Kong dollars since the beginning of 2024 (in less than three months), 32.8% higher than the average level of the past 12 quarters (Figure 5). We believe that the trend of stock buybacks that emerged in the fourth quarter of 2023 continues to this day in 2024. It is worth noting that this means that before the release of the 2023 financial results (most of which will be released in late February or March 2024), the confidence of listed companies continues to improve. This will help boost market sentiment and attract investors focused on long-term fundamentals. A similar trend can also be seen in the A-share market in mainland China, where the trend of stock buybacks that emerged in the fourth quarter of 2023 continues to this day in 2024 (Figure 6), possibly due to regulatory authorities relaxing stock buyback rules, such as lowering the cumulative drop in stock price from "30%" to "20%", and abolishing the rule of "prohibition of buyback window periods", which is consistent with the recent policy direction of the mainland government to support financial market development. For investors seeking to measure the performance of Hong Kong blue-chip stocks, capture potential market revaluation, and track the stock buyback theme, the Hang Seng Index is an ideal choice for the Hong Kong stock market index. In the flagship indexes of Hang Seng Index Company, the buyback amount of Hang Seng Index constituent stocks from the beginning of 2024 to now accounts for 83% of the total buyback amount in the Hong Kong stock market (namely 24.6 billion Hong Kong dollars) (Figure 2). Quarterly growth trends in 2023; buyback trend continues into 2024 As mentioned in the previous blog post, the annual buyback amount in the Hong Kong stock market increased significantly to 104.8 billion Hong Kong dollars in 2022, 4.4 times the 5-year average of 23.9 billion Hong Kong dollars (2017-2021). In 2023, this amount further increased to a record high of 126 billion Hong Kong dollars (a 20.1% year-on-year increase), 5.3 times the 5-year average of 23.9 billion Hong Kong dollars (2017-2021) (Figure 3), exceeding our previous expectations. In contrast, in the mainland market, the buyback amount of listed companies decreased from 2021 to 2023 (Figure 4), seemingly opposite to the upward trend seen in the Hong Kong stock market. However, when examining the latest corporate behavior by quarterly data, both the Hong Kong (Figure 5) and mainland China (Figure 6) markets actually show an upward trend in quarterly buyback amounts. In 2023, both the Hong Kong and mainland markets recorded growth for three consecutive quarters (Hong Kong - quarter-on-quarter growth of +94%/+8%/+26% in the second/third and fourth quarters of 2023, mainland market - quarterly growth of +10%/+28%/+79%). We believe that the buyback amount in the first quarter of 2024 in both markets will increase significantly by at least 80% compared to the same period last year, as the buyback amount in the Hong Kong and mainland markets from the beginning of 2024 (in less than three months) has already increased by at least 80% compared to the first quarter of 2023 (Hong Kong +81%, mainland market +86%). As of now in 2024, the buyback amounts in the Hong Kong and mainland markets have reached 29.8 billion Hong Kong dollars and 29.7 billion yuan respectively, 32.8% and 11.6% higher than their respective average levels of the past 12 quarters. We believe that the trend of stock buybacks that emerged in the fourth quarter of 2023 continues to this day in 2024. It is worth noting that this means that before the release of the 2023 financial results (mostly scheduled for late February or March 2024), confidence among listed companies continues to improve. This will help boost market sentiment and attract investors focused on long-term fundamentals.Improvement. This will help boost market sentiment and attract investors focused on long-term fundamentals.Hong Kong Market: Record High Buyback Amounts at Low Valuations The motivation for companies to buy back shares varies depending on the industry and company situation, and may be related to factors such as capital structure, financial costs, and cash levels. Generally, companies believe that their publicly traded stock is undervalued and that it can be effectively revalued in the future, so they will conduct share buybacks to support stock prices, improve financial conditions, and increase shareholder returns. As of February 23, 2024, according to Bloomberg data, the valuation of the Hong Kong stock market is 9.6 times the expected price-to-earnings ratio (Figure 8), which is 1 standard deviation lower than the 5-year average of 9.7 times, and the expected price-to-earnings ratios of other flagship indices are also 1 standard deviation lower than their long-term averages (Figures 10, 12, 14). We have totaled the share buyback amounts of index constituents since 2020 and compared them with the buyback amounts of main board stocks during the same period to estimate the coverage of the index from the beginning of 2024 to date (as of February 23, 2024). The Hang Seng Composite Index, representing the Hong Kong stock market, covers 99% of the share buyback amounts of main board stocks from the beginning of the year to date (Figure 7). Among the flagship indices, the share buyback amount of Hang Seng Index constituents (246 billion Hong Kong dollars) accounts for 83% of the total share buyback amount in the Hong Kong stock market from the beginning of 2024 to date (Figure 9), while the Hang Seng H-Share Index ETF index accounts for 53% (159 billion Hong Kong dollars) (Figure 11) and the Hang Seng Technology Index accounts for 55% (164 billion Hong Kong dollars) (Figure 13). It can be seen that the Hang Seng Index has the highest exposure to the share buyback investment theme, followed by the Hang Seng Technology Index and the Hang Seng H-Share Index ETF index.