China’s companies spurn directive to pay 30% dividend; Just 60 per cent of China’s biggest listed-companies met the dividend guidelines, a blow for attempts to build credibility in China’s equity markets

May 16, 2013 5:48 am

China’s companies spurn directive to pay 30% dividend

By Josh Noble in Hong Kong

Just 60 per cent of China’s biggest listed-companies met the dividend guidelines laid out by the Shanghai stock exchange earlier this year, a blow for attempts to build credibility in China’s equity markets.

Of the members of the FTSE A50 index, only 30 companies paid a dividend of over 30 per cent during the most recent earnings season, according to data compiled by Markit.

In January, the Shanghai bourse told listed companies to return at least 30 per cent of profits to shareholders“because of a definite gap between cash dividend ratios for Shanghai-listed companies and those in mature markets”.Those that met the requirements would be given preferential treatment when seeking approval for financing or takeover activity, while those that fell short would need to provide a full explanation in their annual reports.

The exchange’s edict was part of a broader effort by Chinese authorities to boost credibility and encourage more long-term investment in the country’s struggling equity markets.

Chinese stocks have been in the dumps for more than three years. Last November the Shanghai index fell below 2,000 points for the first time since the depths of the financial crisis. Although it then went on a brief, stellar run – gaining more than 30 per cent in just a few weeks – the rally ran aground in February. Year to date, the market is in negative territory.

The lack of belief in equities among local investors also has had broad economic ramifications. Many instead have turned to the property market, fuelling a rapid rise in house prices, or to high-yielding wealth management products (WMPs), offered through the shadow banking system.

According to the data from Markit, the companies that failed to meet the exchange’s dividend guidelines were mainly medium-sized lenders – the most exposed to WMPs – and construction and materials groups.

However, the new rules did have some success. The 30 companies meeting the threshold this year compares to just 22 last year. China Merchants Bank and Jiangsu Yanghe Brewery were among those to raise their payouts to meet the new guidelines.

Some analysts have questioned the logic of the guidelines altogether, noting that certain sectors were more in need of cash than others.

“Compared to state-owned banks, these smaller banks need to reserve a larger portion of their earnings as supplementary capital in order to support future profitability and sustainable growth”, Markit analysts wrote in their report.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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