Chinese shares that ended July with their biggest monthly loss in nearly six years suggest that efforts by mainland-listed companies to prop up their shares through buybacks are having limited effect.

 

The Shanghai Composite Index closed down 1.1% at 3,663.73 points, losing 10% over the week and more than 14% in a month.

 

In July, shareholders of at least 554 A-share companies, accounting for 20% of the A-share listed firms, have bought back combined 437 million net shares, valued at 6.9 billion renminbi (US$1.1 billion), according to a Chinese data provider Hithink RoyalFlush Information Network.

 

The companies are mostly concentrated in industries such as chemical, medicine, electrical machinery, telecommunication and electronic equipment, according to the data provider.

 

The Chinese Securities Regulatory Commission said in a statement on July 8 that it encourages big shareholders that hold over 5% stake in an A-share company to buy their own shares, to help stabilize share price.

 

The CSRC made the announcement after the market lost about 35% of its value from its June 12 peak when the index hovered at 5,166.35 points, before plunging to its recent lowest level of 3,373 points on July 8.

 

To cite a few firms, Haitong Securities, the second largest broker in China, said its plan to buy back up to 21.6 billion renminbi worth of shares, while China Merchants Group bought shares in China Merchants Bank worth 859 million renminbi.

 

Share buyback helps push up stock prices as the market positively views shareholders’ show of confidence in the value of the company shares.

 

Baidu, China’s largest domestic search engine, announced on Thursday that it will spend US$1 billion to buy back its shares, following the announcement of a worse-than-expected second quarter results that led to a 15% plunge in its share price two days earlier. Baidu’s share price rose 2.62% on Thursday after the share buyback announcement.