Dividend surge alerts tradition shift in China’s markets

By Jiaxing Li and Ankur Banerjee

HONG KONG/SINGAPORE (Reuters) -New shades of capitalism are rising in China’s tuckered out inventory market as firms, at Beijing’s behest, purchase again their shares and pay file dividends to traders mendacity in await a so-far evasive rebound.

Buyers say the file spree of share buybacks and dividend payouts mark a cultural shift available in the market, turning the highlight on shareholder returns akin to the continuing company governance makeover in Japan.

The dividend yield on Chinese language shares has risen to round 3%, the very best since 2016, rewarding traders who’ve bravely stayed invested in a market that has been limp for years and faces extra stress after Donald Trump’s return as U.S. president.

“China’s regulators and policymakers are attempting to engineer this tradition of shareholder return,” mentioned Jason Lui, head of Asia-Pacific equities and derivatives technique at BNP Paribas (OTC:BNPQY).

“If that may be efficiently engineered, it is going to change the make-up of the capital market, and you’ve got seen some early signal of that,” referring to elevated shareholder returns.

The buybacks and dividends had been launched as a part of proposals by Chinese language authorities in September to carry inventory costs and enhance client sentiment.

The benchmark CSI 300 index has struggled in recent times, down greater than 27% since 2021 towards a 65% rise for the S&P 500. The market worth of Chinese language shares has stagnated for a decade at round $11 trillion.

Lingering considerations over the indebted property sector, deflationary pressures, lack of huge stimulus and geopolitical tensions have harm sentiment, inflicting a overseas funding exodus. The specter of tariffs from Trump is one other fear.

Even after Beijing confirmed willingness to spice up the market in September, inventory costs have misplaced momentum. The CSI300 index surged 40% within the two weeks after the primary stimulus bulletins however disappointment with the diploma and tempo of implementation has seen good points halve since then.

“The straightforward method to have a look at it, try to be paid sufficient of a dividend … so that you can take the ache of the truth that the restoration may not occur in valuations,” mentioned Bhaskar Laxminarayan, chief funding officer for Asia at Julius Baer (SIX:BAER).

“You are being paid for that persistence. In case you’re not, then it is not price it.”

BIG DATA

Chinese language corporations distributed dividends totalling a file 2.4 trillion yuan ($329.7 billion) in 2024. Share buybacks too rose to a file excessive 147.6 billion yuan final yr, knowledge from regulators confirmed.

Wu Qing, head of the China Securities Regulatory Fee, mentioned on Thursday that greater than 310 firms are anticipated to pay out dividends totalling greater than 340 billion yuan in December and January.

That may be a 9-fold enhance within the variety of firms and a 7.6-fold rise in dividend quantity versus the identical interval final yr.

In an indication of how the market is maturing into one the place shareholder return is turning into a differentiator, traders have been steadily pouring into dividend-themed exchange-traded funds (ETFs), with almost $8 billion of influx since 2020, in contrast with simply $273 million within the earlier 5 years, LSEG Lipper knowledge confirmed.

The CSI Dividend Index – comprised of conventional vitality, monetary and materials firms that yield excessive dividends – is up 20% previously 5 years in contrast with a drop of about 8% for the blue-chip CSI300 index.

The CSI development index sank 25% in the identical interval.

CULTURAL SHIFT

Coverage measures, together with a 300 billion yuan share buyback financing programme and pointers requiring mainland firms to enhance shareholder returns and valuations, have helped sharpen the give attention to higher-yielding corporations.

“China was by no means a dividend-yielding asset class as an entire, as a result of it was at all times seen as a growth-oriented play. However now I feel we’re in a pleasant candy spot the place you may have each development and yield,” mentioned Nicholas Chui, China portfolio supervisor at Franklin Templeton.

Roughly two-thirds of the shares in Chui’s portfolio at the moment are yielding no less than 2%, which is “not only a deliberate allocation on my half, however actually your entire market has gone up in yield,” Chui mentioned. “It is a change in tradition.”

Rising dividends additionally forestall income-seeking mainland traders from speeding into bonds, as they’ve accomplished for months. The dividend yield is now properly above the 1.7% they will earn on 10-year authorities bonds.

Shares of battery maker Up to date Amperex Know-how and e-commerce behemoth Tencent rose after the businesses introduced buybacks or dividend payouts.

Goldman Sachs estimates Chinese language firms listed at house and overseas might return a complete 3.5 trillion yuan to shareholders in 2025, a bounce of over 17%.

“Firms do not know the place to place their money, so that they return it now to shareholders. This can be a very huge shift in mindset,” mentioned Herald van der Linde (NYSE:LIN), head of fairness technique for Asia-Pacific at HSBC.

“I feel 10 years in the past, you would not have anticipated this.”

($1 = 7.2798 Chinese language yuan)