London named share buyback capital of the world
The UK has jumped up the leader board to be named the share buyback capital of the world, as companies looked to capitalise on low valuations and improved investor sentiment.
Nearly 60 per cent of UK large cap companies bought their stock back in bulk in the last 12 months, according to the latest research from wealth manager Schroders, compared to just 45 per cent in the US.
Listed companies often buy back their shares in order to return excess cash to shareholders and boost financial metrics such as earnings per share.
Schroders credited the shift to a range of catalysts, primarily the UK stock market falling to cheap valuations compared to global competitors.
Valuations
The FTSE 100 is trading at 13.1 times the next 12 months’ forecast earnings, according to the latest findings from AJ Bell, a 37 per cent discount to the S&P 500’s 20.8 times rating, emphasising the valuation gap and the UK’s attractiveness.
Duncan Lamont, head of strategic research at Schroders, said: “Since 2016…the UK stock market has fallen to quite a cheap valuation compared with overseas market.
“What you started to see around that point in time was that there was a lot of demand coming in from UK equities – not yet from investors but from other sources. You had directors buying back their shares.”
Lamont noted that the wave of share buybacks also sends a “clear signal” to the wider market that they “see value in it”, potentially triggering a chain reaction of domestic investor interest.
It comes after a “real frustration” of domestic investors taking minimal interest in UK stocks in favour of the more “glamorous” US tech stocks, leaving UK companies to fill the void, but Lamont predicts this may soon come to an end.
He said: “What we’re seeing right now I really hope that it spurs people just to think again about the UK stock market, because their earnings are doing well, their valuations are still cheap in a global context.
“They’ve got an awful lot to offer.”
Japan and Europe
While Japan and Europe have also seen an uptick in share buybacks, the reason for Japan differs from the UK, as the nation is shifting its focus to corporate governance.
Historically, Japanese companies have hoarded cash and boasted conservative balance sheets, focusing on stability and risk aversion, with little pressure for shareholders to provide returns.
Following the appointment of Sanae Takaichi as prime minister in October 2025, companies have begun utilising capital after spotting that it ultimately failed to support investors.
Lamont said: “It’s a cash drag, it’s not doing anything useful for investors…if you’ve not good use for that cash and investments, it’s much better if you return it to your investors.
“It’s a structural change that could lead to a long term benefit to Japanese equities.”
Meanwhile, Europe’s rise has been credited to similar reasons to the UK, using buybacks as a signalling tool to the market that shares are undervalued.
US buyback slowdown
In contrast to the UK, the US has pivoted away from share buybacks, after a pre-covid surge, as large companies turned their cash towards investing in infrastructure.
Primarily, this switch in handling capital has occurred in the tech sector, including Magnificent seven stocks such as Meta and Apple, which are locked into the “AI arms race”, causing them to redirect capital towards infrastructure such as data centres.
Lamont said: “The balance is shifting at some of these big American companies now to say, well actually we need that money to reinvest.
“You wouldn’t want it to be a situation where all money was just getting returned to shareholders, because that could almost be seen as a negative signal.”