China Market Focus Shifts to Shareholder Returns Amid Stock Market Stagnation

Chinese companies are embracing new forms of capitalism by implementing stock buybacks and record-breaking dividend payouts, marking a cultural shift in the market.

Shift Towards Shareholder Returns

Hong Kong/Singapore (Reuters) - The sluggish Chinese stock market has prompted Beijing to encourage companies to prioritize shareholder returns. This move aligns with the ongoing corporate governance overhaul in Japan.

The dividend yield for Chinese stocks has surged to 3%, the highest since 2016, attracting investors to a market that has faced challenges for years.

Government Initiatives

The surge in buybacks and dividends was introduced as part of government proposals in September to boost stock prices and consumer sentiment. However, the benchmark CSI 300 index has struggled in recent years, with foreign investment plummeting due to concerns over the property sector, inflation, and geopolitical tensions.

Dividend Spree

Chinese firms distributed a record 2.4 trillion yuan ($329.7 billion) in dividends in 2024, while share buybacks reached a high of 147.6 billion yuan last year. Over 310 companies are expected to pay dividends totaling 340 billion yuan in December and January, a significant increase from the previous year.

Maturing Market

Investors are shifting towards dividend-themed exchange-traded funds (ETFs), with inflows of nearly $8 billion since 2020. The CSI Dividend Index has outperformed the CSI300 index in recent years, indicating the importance of shareholder returns.

Policy Measures

Government policies, such as a share buyback financing program and guidelines for mainland companies to improve shareholder returns, have contributed to the focus on higher-yielding firms.

"China was never a dividend-yielding asset class, but now we're in a sweet spot where you have both growth and yield," said a Franklin Templeton portfolio manager.

Rising Dividends

The rising dividends deter mainland investors from opting for bonds, with dividend yields now surpassing the 1.7% offered by 10-year government bonds. Companies such as Contemporary Amperex Technology and Tencent have witnessed stock price gains after announcing buybacks or dividend payouts.

Outlook

Goldman Sachs projects that Chinese companies could return 3.5 trillion yuan to shareholders by 2025. "Companies return cash to shareholders when they have nowhere else to put it," said an HSBC equity strategist. "This is a significant mindset shift."