Despite both companies announcing stock buybacks, SK Hynix saw its shares rise while Hyundai Motor experienced a decline. Although stock buybacks are typically viewed as a key method for returning value to shareholders, recent trends suggest that the scale of buybacks alone cannot explain subsequent stock price movements.
On August 27, the Korea Exchange reported that Hyundai Motor's shares closed at 398,000 won, down 10,000 won (2.45%) from the previous day. This marks a two-day decline following the company's announcement to retire a total of 2,505,606 shares, valued at approximately 789.1 billion won, which it had previously held.
Market analysts interpret Hyundai's stock weakness as a result of the company opting to retire existing shares without any new buybacks, coupled with a lack of anticipated enhancements to shareholder returns. Hyundai maintained its existing policy of a shareholder return rate of over 35% and a minimum dividend of 10,000 won per share.
In contrast, SK Hynix has shown a markedly different trend. After announcing on August 19 that it would acquire and retire approximately 40 trillion won worth of its own shares, the company's stock surged by 12.73% on the following trading day. This increase was bolstered by the introduction of a new policy to return over 50% of its free cash flow (FCF) over the next three years, highlighting a clear distinction from Hyundai's approach.
Other large companies that decided to retire shares this year have not consistently seen immediate stock price increases. For instance, Samsung Electronics announced a buyback of approximately 14.5 trillion won worth of its shares in March, but its stock fell by 5.16% on the announcement day. Similarly, SK Square's stock dropped by 1.84% on the day of its buyback announcement in July, followed by an additional 0.73% decline the next trading day. These examples illustrate that stock price movements cannot be solely attributed to the event of a stock buyback.
Conversely, when stock buybacks are accompanied by positive expectations regarding performance and shareholder returns, stock prices tend to rise. KB Financial saw a 7.03% increase the day after its buyback announcement in February. Shinhan Financial, while only rising 0.66% on the announcement day, increased by 2.97% the following trading day and closed up 16.61% five trading days later.
Additionally, the frequency of stock buybacks has increased, making them less of a rare event. According to Mirae Asset Securities, the scale of stock buybacks among KOSPI companies is expected to rise from 16 trillion won in 2024 to 19 trillion won in 2025. As of August this year, cumulative buybacks, including SK Hynix's, have reached 77 trillion won.
Jin-A Lee, a researcher at Meritz Securities, stated, "The effectiveness of shareholder returns is not determined solely by the absolute scale or return rate. The market reacts to the difference between the expected and actual levels of returns announced. It is essential to consider not only the absolute amount of returns but also the actual reduction in shares through buybacks, the sustainability of FCF, and the potential for future stock price reevaluation."
* This article has been translated by AI.
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