(The views expressed here are those of the author, the founder

and CEO of Emmer Capital Partners Ltd)

By Manishi Raychaudhuri

HONG KONG, Sept 4 (Reuters) - Asian companies have

traditionally preferred to return excess cash to shareholders

via dividends, rather than buybacks.

However, that seems to be changing, especially in North

Asia. If this buyback momentum persists, the valuation boost

could be significant - but regulatory support will be key.

Asian companies have bought back shares worth around $266

billion in the first eight months of 2025, almost 70% more than

they did in all of 2024, according to FactSet.

The markets accounting for the most buyback activity include

Japan, where firms bought back almost $110 billion, and Hong

Kong, where companies scooped up around $105 billion. China and

South Korea represent the majority of the remainder.

While a significant portion of U.S. corporate buybacks have

been funded by debt, Asian share repurchases are supported much

more frequently by companies' increasing free cash flow (FCF).

In other words, Asian companies are genuinely returning excess

cash to their shareholders, not just handing over borrowed

money.

The free cash flow coming from the "Big Four" share

repurchasing Asian markets - Japan, China, Hong Kong and South

Korea - has not only grown over the past four years, but it has

hugely outstripped their respective buyback volumes, according

to FactSet.

In fact, only a fraction of Asian companies' FCF has been

used for buybacks in recent years: 6% in 2021, rising to around

10% in 2022 and then hovering in the 9% to 9.5% range throughout

2023 and 2024. In contrast, the proportion in the U.S. during

2023-24 was between 41% and 49%.

This suggests that there is still room for Asian companies

to increase their buyback volumes.

REGULATORY PUSH

Regulatory support in Japan, South Korea and China has

played a significant role in the trend toward more

shareholder-friendly policies, including the increased use of

buybacks.

Japan was the first of the three to implement policies

focused on boosting shareholder value, with efforts initially

announced in March 2023. The Tokyo Stock Exchange encouraged

companies to regularly communicate with their shareholders about

their plans for improving return-on-equity (ROE).

Consequently, many management teams pursued the quickest

route to ROE enhancement: returning cash to shareholders via

dividends and buybacks.

Beijing followed suit in December 2023, when the China

Securities Regulatory Commission (CSRC) relaxed rules for share

buybacks by listed companies. In March 2024, the CSRC doubled

down with policies encouraging companies to put in place buyback

plans in response to short-term share price volatility.

Meanwhile, South Korea's oft-discussed "Value Up" programme,

instituted in February 2024, encouraged dividend payments and

buybacks among other measures in an effort to enhance

shareholder value.

These regulatory nudges were followed by an explosion in

buyback and dividend volumes in all three markets.

But why did buybacks make up a larger percentage of this

activity compared to the past?

In a word, valuations.

Economic theory suggests that companies pursue buybacks when

they believe their stock is undervalued. Asia's emerging buyback

boom largely seems to be following this principle. Companies in

South Korea, Hong Kong and Japan trade at price-to-book

multiples of between 1 and 1.5, significantly lower than the

Asian average of 1.7. Onshore China is the exception, with a

multiple just above 2.

REPEAT PURCHASERS

This burgeoning buyback trend has been driven, in large

part, by a few Asian companies that have been buying back their

shares fairly regularly and often in large quantities in recent

years.

The top 10 Asian share repurchasers over the past five years

are predictably spread across Hong Kong and Japan, the region's

largest buyback markets.

Five of the top 10 are banks, insurance companies and

investment firms, likely reflecting their relatively low

valuations. Chinese internet platforms Alibaba ( BABA ) and

Tencent ( TCTZF ), both big cash generators, stand out as well.

Not all of the biggest buyers have been consistent

repurchasers though. For example, Agricultural Bank of China

and Industrial and Commercial Bank of China

bought back only once and twice, respectively, in

the past five years.

The seven consistent repurchasers, with the exception of the

Japanese telephone company NTT, saw their shares perform well

over the past year, with four outperforming their home market

handsomely. While the outperformance certainly cannot be

attributed only to rising buybacks, these corporate actions

clearly supported share prices.

CAN IT CONTINUE?

Will Asian corporates continue returning more cash to

shareholders via buybacks? The longevity of this trend will

likely depend largely on whether there is further regulatory

support, particularly shareholder-friendly tax reforms, such as

reducing taxes on buybacks.

The path may not be smooth, though, as governments face

competing priorities, particularly given the unknown economic

impact of the spike in U.S. tariffs on the region's exports.

For example, South Korea recently surprised investors by

announcing an increase in the securities transaction tax, a move

that could put downward pressure on buybacks and dividends.

Rising valuations, as we have seen this year in Hong Kong

and South Korea, are another issue, as this could make stock

repurchases less attractive.

Many of the large North Asian economies have appeared to be

heading in a more shareholder-friendly direction in recent

years. Given the rapidly shifting global economic backdrop, it

remains to be seen whether this trend will now persist or go

into reverse.

(The views expressed here are those of Manishi Raychaudhuri, the

founder and CEO of Emmer Capital Partners Ltd. and the former

Head of Asia-Pacific Equity Research at BNP Paribas

Securities).

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(Writing by Manishi Raychaudhuri; Editing by Anna Szymanski and

Jamie Freed)