The Investor's Guide to China: Shareholder return (#29)
Apr 24, 2024
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Investment Director Catherine Yeung and other experts discuss China's shift towards prioritizing shareholder returns, including dividends and buybacks. They explore changes in management mindset, industries ramping up payouts, and the role of regulators and investors in the process.
Chinese companies are increasingly focusing on long-lasting shareholder returns through dividends and buybacks, driven by regulatory measures and changing management mindsets.
Both state-owned and private enterprises in China are adapting their strategies to prioritize increased dividend payouts, reflecting a shift towards sustainable shareholder returns in the market.
Deep dives
Shift Towards Shareholder Returns in China's Economy
The focus in China's economy is shifting from rapid growth to quality, with more emphasis on long-lasting shareholder returns like dividends and buybacks. This change is driven by regulators and companies across different sectors, even in the so-called old economy segments. Chinese industries are adapting to ramp up payouts for investors, influenced by government policies that encourage sustainable shareholder returns.
Regulatory Changes and Impact on Shareholder Returns in China
Recent regulatory measures by the China Securities Regulatory Commission aim to promote a healthier stock market by increasing buybacks and dividends. Companies failing to pay dividends face heightened penalties, indicating a clear push towards sustainable shareholder returns. These changes reflect a government agenda for more stable and dividend-focused shareholder returns.
Difference Between State-Owned Enterprises and Private Companies in Shareholder Returns
State-owned enterprises in China historically prioritized revenue and market share over shareholder returns, but recent shifts include incorporating ROE and cash flows into key performance indicators. In contrast, private companies utilized the equity market for funding without a focus on immediate returns. However, changing valuations now prompt both SOEs and POEs to consider increased dividend payouts.
Growing Emphasis on Shareholder Returns in Various Sectors
Notable changes in the utility sector point towards increased shareholder returns due to shifting lifecycle stages and focus on mature performance over growth. Companies diversify from seeking investor funding for growth to offering dividends and buybacks. State-owned utility firms and private enterprises are adjusting strategies to enhance shareholder returns amidst evolving market dynamics and regulatory pressures.
The story of China's economy and stock market has long been one of rapid growth. But as policymakers pivot to focus on the quality - instead of the velocity - of growth, investors are turning their attention to something more long-lasting: shareholder returns.
Dividends and buybacks are moving up the agenda of regulators and companies in China, generating interest for investors across the market, even in sectors of the so-called ‘old’ economy.
In this episode, Catherine Yeung, Investment Director, and Marty Dropkin, Head of Equities for Asia Pacific, are joined by two of Fidelity International’s portfolio managers: Lynda Zhou and Dale Nicholls. Together, they explore a change in the mindset of Chinese management teams, which industries are most prepared to ramp up payouts for their shareholders, and the role of regulators and investors in the process.
With additional contributions from Shanghai-based analyst Bunny Huang and Singapore-based Portfolio Manager Jochen Breuer.