Buyback wave set to lift market tide, sentiment

While the A-share market bounced back on Tuesday amid buyback plans announced by asset managers and public sector companies, such moves, which indicate the market's bottoming out in the near term, will help further gird investor expectations and market performance, experts said.

The benchmark Shanghai Composite Index gained 0.88 percent to close at 3120.33 points on Tuesday while the Shenzhen Component Index climbed 0.53 percent to end the trading day at 10374.73 points.

This follows news that at least 17 asset management firms have announced since Monday plans to repurchase their own equity or mixed-type mutual fund products by using their own capital. The total value of such transactions has so far exceeded 1 billion yuan ($140 million).

This is in response to investment reform suggestions the China Securities Regulatory Commission proposed on Friday. The country's top securities watchdog said on its official website that asset managers should buy back their own equity-based products, with such moves seen as conducive to the high-quality development of the mutual fund industry and a more optimized investment environment.

China Southern Asset Management announced on Monday it would spend 50 million yuan to repurchase its own equity-based mutual fund products. Researchers from the company said that the A-share market is already at a near-term nadir compared with historical data. Therefore, it is now a good time to increase A-share exposure, both in terms of short-term planning and long-term strategy.

Likewise, China Universal Asset Management announced on Monday it would repurchase its own actively managed equity-based mutual fund products for 50 million yuan. Confidence in the long-term and healthy development of the Chinese capital market is one major reason for the move, said the company.

Yang Delong, chief economist of First Seafront Fund, said the repurchase plans of asset managers will help elevate the indexes, which is quite important now as market confidence is insufficient. The effect of these repurchases can be proven by the market rally in October last year, when asset manager buybacks played an important role.

From another perspective, asset managers' latest moves show that the A-share market has reached a relatively weak position, suggesting a time window for retail investors to make their A-share strategies for the second half, Yang said.

At the same time, more than 50 A-share companies have announced buyback plans since August, of which 21 have reported individual repurchase scales of no less than 100 million yuan.

The CSRC also said on Friday that share repurchases or buyback conditions should be further optimized to stabilize and boost share prices, consolidate the foundation of a stable equity market and give more positive signals.

As calculated by China International Capital Corp, A-share companies engaged in engineering, medicine, electronics and basic chemicals have reported the most cases of share repurchases.

Based on past experience, buyback strategies typically increase when the market approaches unusually low levels, said CICC experts. The lower valuation of the CSI 300 Index — the benchmark of 300 A-share large-caps — saw daily trading value of under 700 billion yuan over the past few trading days, and the fewer issuance of new mutual fund products are all indicators of near-term weakness.