US Companies' 'Share Buybacks' Hit Lowest Since Pandemic

Financial Cost Increase Due to High Interest Rates Is the Cause

In the U.S. stock market, the flow of corporate share buybacks has slowed down the most since the COVID-19 pandemic. This is analyzed to be due to weakened incentives for share repurchases amid growing economic uncertainties such as increased financial costs caused by interest rate hikes.

According to major foreign media on the 17th (local time), the total amount of share buybacks by S&P 500 companies in the second quarter of this year was $175 billion (approximately 233 trillion KRW). This represents a 20% decrease compared to the same period last year and a 19% decline from the previous quarter. Foreign media reported, "The scale of corporate share buybacks is falling to the lowest level since the pandemic."

[Image source=AFP Yonhap News]

Notably, the reduction in share buybacks by bank stocks, which have recently shown sluggish stock price movements, stood out. Typically, companies buy back shares to boost stock prices when prices fall. This is to send a message to the market that the stock is undervalued and to maximize the stock price support effect.

Howard Silverblatt, an index analyst at S&P, said, "As business risks have expanded due to regional banks' customer deposit withdrawals triggered by the March collapse of Silicon Valley Bank (SVB) and regulators' tightening of capital requirements, banks are becoming more reluctant to repurchase shares." He added, "Since banks prioritize dividend increases over share buybacks, they may further reduce the scale of buybacks to secure dividends."

Market analysts predict that the decline in share buybacks could signal the start of a trend of downward movement in the U.S. stock market. There is also analysis that the attractiveness of share buybacks is decreasing as financial costs rise due to high-intensity interest rate hikes since last year and new investment demand emerges.

Jill Carey Hall, an equity quant strategist at Bank of America, said, "Along with the high-interest-rate environment, structural changes in the market have made companies hesitant to repurchase shares," and added, "The trend of companies reducing the scale of share buybacks is expected to continue for the time being." She cited supply chain reshoring, automation, achieving net-zero carbon emissions goals, and expanding investments in new businesses such as artificial intelligence (AI) as factors limiting share buybacks.

With the Biden administration in the U.S. starting to impose a 1% tax on share buyback amounts from this year, the trend of sluggish share repurchases is expected to continue. The Biden administration plans to raise the tax rate to 4% in the future to encourage companies to focus on investment rather than share buybacks from a cyclical economic perspective.

This content was produced with the assistance of AI translation services.