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Share buy-backs decline in Hong Kong after five years of boom

Share repurchases fall sharply, indicating the city's market is fully valued after cheap debt encouraged companies to go on spending spree

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Melco Crown Entertainment, whose profit from its City Of Dreams, fell in the past quarter, is planning a buy-back. Photo: Bloomberg

Following a big spike in the past five years, share buy-backs by Hong Kong firms are in decline.

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At the rate seen in the year to date, Hong Kong will see just a quarter of the buy-back approvals granted last year, according to S&P Capital IQ, a data firm.

Buy-backs are an indicator that a company sees its shares as undervalued, and are often viewed by investors as a signal to buy the stock.

The decline in buy-back approvals could be interpreted as a sign that the market was fully valued, said Philip Lee, an S&P Capital director.

"You could make the argument that with buy-backs slowing down, the Hong Kong exchange is reaching a fair value," Lee said. "Companies can also only do so much. If you have a huge flurry [of buy-backs] after a while, they are just going to run out."
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Just because a company announces plans for a buy-back does not mean they will proceed. Moreover, there is no reliable data showing how much money a company spends on a buy-back. It may announce a plan to buy back HK$1 billion of shares and then uses only part or none of that quota.

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