China’s leading technology firms are significantly increasing their shareholder returns this year, with share buybacks reaching a record HK$187 billion ($24 billion) as of 2024. This figure has already surpassed last year’s total. The surge in repurchases is largely driven by major internet companies, with Tencent Holdings Ltd. alone contributing 40% of the total buybacks.
The move comes as China’s economic slowdown casts a shadow over consumer spending online, prompting tech firms to enhance returns to appease shareholders. “It’s a win-win for both companies and investors,” said Xin-Yao Ng, director of investment at abrdn Asia Ltd. “Companies are motivated internally, and investor pressure will persist as long as economic growth remains uncertain.”
The pressure on China’s tech sector has intensified due to slowing e-commerce revenue and weak online advertising performance, causing the Hang Seng Tech Index to fall 16% from its peak in May. Despite these challenges, robust cash flows and low capital requirements position internet firms well to continue rewarding shareholders. Furthermore, Beijing’s restrictions on sector consolidation have reduced acquisition spending, allowing companies to allocate more funds to shareholder returns, Ng added.
China’s major tech stocks are outpacing their global counterparts in shareholder yields. E-commerce leader Alibaba Group Holding Ltd. offers a yield of over 8%, while social media platform Weibo Corp. provides 7.5%. These figures exceed those of the “Magnificent 7” tech giants, with Meta Platforms Inc. leading that group at 3.7%.
Direct cash payouts are also on the rise, with the Hang Seng Tech Index’s forward dividend yield more than doubling over the past year to exceed 1%. Nonetheless, the index is trading close to a record low of under 13 times expected earnings for the next 12 months.
Vey-Sern Ling, managing director at Union Bancaire Privee, believes that higher shareholder returns are likely to persist due to the depressed valuations and the sustainable cash flow of internet companies despite growth challenges.
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