TOKYO -- As the Japanese stock market undergoes a correction triggered by anxiety over the state of emerging markets, share prices of companies announcing stock buybacks are firm.
Material maker Zeon announced at the start of Thursday's afternoon session that it will buy back up to 5 billion yen ($48.7 million) in shares. The stock price, which had edged down in the morning, rebounded to end up 7%.
Construction firm Comsys Holdings, which also announced plans on Thursday to buy back shares, climbed 3%. Trading house Mitsui & Co. rose 10% over two sessions after revealing a share repurchase plan on Wednesday.
Buybacks are generally seen as a sign that company management views the stock as undervalued. In the recent market, where stocks have undergone a short-term correction, "its impact is easily seen," says Takashi Ito, equity market strategist at Nomura Securities.
Some companies are actively buying back shares as they see their stock prices slide. Yamato Holdings said on Jan. 29 it would buy back as much as 10 billion yen in shares, and did so in just a week.
Share repurchases by listed firms are expected to reach 2 trillion yen this fiscal year, increasing 20% on the year, according to Nomura Securities.
Buybacks also let companies give back surplus funds to investors, thereby slimming down a firm's capital. The government is encouraging companies to beef up corporate governance and raise capital efficiency, as part of a larger growth strategy for Japan. So investors are paying more attention to how well capital is utilized, says Soichiro Monji, head of economic research at Daiwa SB Investments.
In some cases, however, the positive impact of a share buyback announcement is short-lived. Gaming giant Nintendo repurchased 9.5 million in shares for some 114.2 billion yen on Tuesday. But due to sluggish earnings in its core operations, its stock still fell.
Some investors want Japanese firms to step up share repurchases further, in view of how U.S. companies are carrying out share buybacks in the 1 trillion yen to 2 trillion yen range. Telecom giant NTT announced a share repurchase plan on Thursday, but it would total just 200 billion yen at the most, or 3.34% of all outstanding shares.
More and more Japanese firms are carrying out share repurchases to boost capital efficiency. But compared with the amount of surplus funds, "the purchases are still small, so there is the aspect that the impact evaporates quickly," says Nobuyuki Fujimoto, senior market analyst at SBI Securities.