Active stock buyback by listed Korean Inc. helps little in bearish market

South Korean listed companies have been aggressively buying back shares to prop up stock prices to little avail against multiple downsides for the stock market.

According to a study by Maeil Business Newspaper on Wednesday, more than half of listed companies that disclosed their buyback plans in the second half underperformed market average during the week after posting.

Of the 19 firms trading on the Kospi, only nine hovered above Kospi retreat. On the Kosdaq, 18 out of 41 companies beat the Kosdaq index.

For example, Kospi-listed Yuyu Pharma announced a 2 billion won ($1.4 million) buyback plan on Sept. 19, but its stock prices sank 11 percent a week later. The Kospi fell 7 percent during the period.

Dai Han Pharm shares were boxed for a week when the Kosdaq gained 5 percent after its disclosure of 3 billion won buyback plan on Sept. 28. Sejong Telecom who revealed a 15 billion won worth buyback scheme on Sept. 27 also saw its shares off 13 percent during the week after the announcement, much bigger than the Kosdaq fall of 1.4 percent during the same period.

Analysts say stock buyback has little effect in the lackluster market facing challenges of fast rises in interest rates and recession danger.

Stocks weathered the bear only when they were backed with positive earnings outlook.

Shares of SKC that unveiled its blueprint for the copper foil business of subsidiary SK Nexilis early this month jumped 19 percent in a week after the disclosure about a buyback program. The rise is much bigger than the Kospi gain of 1 percent during the period.

Hanwha Solution shares also climbed 6 percent after the announcement of its buyback plan on expectations for growing solar panel demand from rising interests in climate change and energy security. The Kospi rose 1 percent over the same period.

Some say that investors started being skeptical about the effect of buyback programs.

“Companies used two-thirds of own shares to pay bonus compensation to employees and one-fourth to secure funds by repurchasing overvalued shares. From the perspective of shareholders, this is not that positive as a reward program,” said Kang So-hyun, an analyst at the Korea Capital Market Institute.

“In the U.S., companies repurchase shares and then mostly cancel them. But in Korea, the retirement ratio reaches only 3 percent,” said Choi Yu-joon, an analyst at Shinhan Investment.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]