Record returns are silver lining as China’s tech stocks slump

Bloomberg News
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(Bloomberg) — China’s largest technology companies are returning more of their cash to shareholders than ever before, as they continue to ramp up buybacks to support their flagging stocks.

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Repurchases of shares listed in Hong Kong have reached HK$187 billion ($24 billion) so far in 2024, already surpassing last year’s record total, according to data compiled by Bloomberg. Cash-rich internet companies are driving the trend, with Tencent Holdings Ltd. accounting for 40% of the total this year.

As lingering weakness in China’s economy clouds the outlook for the consumer spending online, tech firms are expected to continue trying to placate shareholders with greater returns.

“It’s a win-win for both companies and investors,” said Xin-Yao Ng, director of investment at abrdn Asia Ltd. “The motivation internally for companies as well as the push from investors will continue as long as confidence on economic growth is weak.”

Slowing e-commerce revenue growth and lackluster online advertising in the latest set of results have ramped up pressure on China’s tech industry. That’s weighed on share prices, with the Hang Seng Tech Index down 16% from a May high.

Despite sluggish trends, internet firms’ strong cash flows and low capital requirements are seen providing them with deep resources for returns. In addition, Beijing’s moves to limit sector consolidation means companies aren’t spending as much on acquisitions, so they have more to give back to shareholders, according to abrdn’s Ng.

Returns from China’s biggest tech stocks are surpassing those of global majors. Shareholder yield for e-commerce giant Alibaba Group Holding Ltd. (BABA) now stands at more than 8%, while social media firm Weibo Corp. (WB) offers 7.5%. Those are higher than all of the Magnificent 7, with Meta Platforms Inc. (META) ranking the highest in that group at 3.7%.

Direct cash payouts have improved as well, with the Hang Seng Tech’s estimated forward dividend yield more than doubling over the past year to over 1%. Still, the gauge is trading near a record low of less than 13 times expected earnings over the next 12 months.

“I think higher shareholder returns are here to stay given depressed valuations and the highly cash-generative businesses of internet companies, which appear sustainable despite the lack of growth,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

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