Aug 16, 2019

Tech companies slow stock buybacks as the China trade war bites

Dion Rabouin, author of Markets
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Data: Catalyst Funds; Chart: Andrew Witherspoon/Axios

Public companies are slowing their stock buybacks in 2019 from 2018's record pace, and the slowdown in the tech sector shows the trade war is beginning to hit the economy in unexpected ways.

Why it matters: "Given the state of the economy, what this really means is that companies are probably likely more concerned now than they were last year that conditions could get far worse and therefore aren’t too excited to start large buyback programs," Catalyst Funds COO Michael Schoonover tells Axios in an email.

What's happening: After starting the year as the top sector for buybacks, tech companies have dramatically slowed their pace as the trade war has escalated, data provided to Axios by Schoonover shows.

  • Tech accounted for more than one-third of last year’s buybacks, but has dropped to just 22% of a smaller total this year as companies have lost confidence that buybacks are an effective use of capital, Schoonover says.

Be smart: The lack of confidence is evidenced by the significant drop in buybacks starting in May after President Trump escalated the trade war by raising tariffs on $200 billion worth of Chinese imports.

Yes, but: The data shows that the 4 tech companies that bought back large amounts of their stock saw significant outperformance versus the market.

  • JP Morgan analysts last month noted in a white paper that as fewer companies choose to buyback stock, those who do will likely see higher returns.

Go deeper: Too much money (and too few places to invest it)

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