Chinas efforts to prop up its flagging stock market has made yuan a casualty

December 29, 2024 at 11:18PM
An interesting item from Bloomberg (gated) discussing how Chinese authorities have propped up the country’s equity markets but slammed the yuan as an unintended consequence:

record dividend payouts (“dividend bonanza”) lead to currency outflows

Between January and March, interim dividends from Hong Kong-listed Chinese companies are expected to hit a record level for the first quarter of US$12.9 billion, following a strong $16.2 billion in the fourth quarter, up 47% year-over-year.

These payouts, primarily in Hong Kong dollars but earned in yuan, require currency conversions, increasing demand for foreign currencies and contributing to yuan depreciation. This puts pressure on China’s central bank to balance short-term market stability with long-term economic goals, as the yuan nears one-year lows.

Chinese companies, especially state-owned enterprises (SOEs), have been increasing dividend payouts since April’s capital-market reforms, which encourage higher shareholder returns and better corporate governance. In 2024, total dividends paid are expected to reach $118 billion. Despite a strong rally in SOE shares earlier this year, the focus on boosting dividends is exacerbating the yuan’s weakening, with regulators stressing the need for consistent cash distributions.

Economists suggest that Beijing may take steps to guide dollar inflows to support the yuan as dividend payouts continue to rise.

This article was written by Eamonn Sheridan at www.forexlive.com.