RPT-BREAKINGVIEWS-Stock buybacks give star-spangled finance an edge

By Pranav Kiran

TORONTO, Aug 25 (Reuters Breakingviews) - Taylor Swift and superhero movies have something in common with chief financial officers. Among the American cultural touchstones that attract global audiences, companies buying back their own stock loom large. Contrary to global norms, U.S. corporations are eager to return cash through buybacks that reduce share counts, helping to drive superior investor returns. They’re strengthening American exceptionalism even as President Donald Trump’s policies strain trade relations.

The term “soft power” – the means by which a country projects global influence without the use of force – was coined by political scientist Joseph Nye in the 1980s. At the time, he used the idea to argue against a protectionist turn in public opinion as the Cold War drew to a close, pushing for continued worldwide engagement. Aside from exporting popular media, foreign aid and opening colleges to international students have been touted as tools of influence.

Even as the Trump administration cuts away at those efforts and leans away from subtler opinion-shifting to outright coercion, Wall Street now holds this kind of appeal. International investors now own 20% of U.S. equities, according to Apollo Global Management’s Torsten Slok, after raising their holdings sixfold to $19 trillion over the last 15 years. The draw is obvious: over that period, the S&P 500 Index .SPX has far outperformed indices elsewhere.

A big part of the story is, of course, the handful of highly profitable mega technology firms dominating the top of the U.S. corporate sphere. Yet each share is a claim on a company’s cashflows; reducing their number leaves each remaining one with a larger slice. Companies in the S&P 500 bought back nearly $1 trillion of stock last year, and have for a long time reduced their outstanding shares more aggressively than counterparts in the UK. Aggregate floats in the EU and Japan have instead increased since 2005, according to Schroders research. This is despite the prevalence of fast-growing U.S. companies that rely on issuing stock to finance growth in sectors like biotechnology.

Ideally, buybacks send two strong signals to investors. First, that management would rather return money than waste it on value-destructive projects. Second, that the company’s shares could be undervalued.

The trend might yet turn into a cultural export. Perhaps taking notice, some 60% of European companies are now buying back stock, compared with about 20% historically, Goldman Sachs research showed last year. About half of all large companies in the UK bought back at least 1% of their shares over the past 12 months, Schroders reckons. For now, though, Uncle Sam remains uniquely on trend.

CONTEXT NEWS

S&P 500 companies’ spending on stock buybacks rose 18.5% to $942.5 billion in 2024, S&P Dow Jones Indices announced on March 19. Share repurchases rose 23.9% year-over-year in the first three months of 2025, to a quarterly record of $293.5 billion.