By Jacky Wong
Chinese stocks have been a money pit for the past few years. But for investors willing to look past the wreckage, some companies are giving back.
The domestic Chinese stock market remains a shadow of its former self, even after snapping a three-year losing streak in 2024. The CSI 300 index -- which tracks the largest companies listed in Shanghai and Shenzhen -- has shed around a third of its value since its 2021 peak. The pain runs even deeper for stocks listed in Hong Kong and the U.S., where tech giants such as Alibaba and Tencent have been hit hard by regulatory crackdowns and slowing growth.
Beijing is now attempting to engineer a market revival. On Thursday, regulators said they would encourage state-owned insurers to invest 30% of new policy premiums into domestic stocks, while mutual funds are required to raise domestic equity holdings by 10% annually for the next three years.
While the hope for substantial stimulus from Beijing has lifted Chinese stocks since September, any bet on a full economic recovery still seems a long way off. But a surprising bright spot has emerged: companies, especially state-owned ones, with robust dividend yields.
The investment calculus becomes even more compelling when comparing yields. China's 10-year government bonds now yield just 1.66%, significantly lower than the CSI 300's nearly 3% dividend yield -- a stark reversal from 2017, when bond yields exceeded stock dividends by more than 2 percentage points.
Hong Kong-listed China National Offshore Oil Corp., or Cnooc, a state-owned oil major, is a case in point: Its stock has more than tripled since March 2020, and it currently carries a dividend yield of 7.6%. Similarly, state-owned telecom China Mobile's stock has gained 82% since early 2021 and sports a 6.6% dividend yield.
Even Chinese banks, long viewed with skepticism, have seen a revival. Despite lingering concerns about risks from the real-estate market crash and the slowing economy, their stocks surged in 2024. State-owned Industrial and Commercial Bank of China, the country's largest bank, now offers a dividend yield of 9.4%.
That level of payout might prove too tempting for investors to pass up, even with the potential risks. And ultimately, the risks to state-owned giants like these are limited. For instance, even if loans go bad as they have in the past, ICBC enjoys explicit state backing.
Private companies have also stepped up their cash returns. For example, U.S. and Hong Kong-listed e-commerce firm JD.com announced a $5 billion buyback over three years in September, equivalent to nearly 8% of its market value. Combined with its 1.9% dividend yield, the potential returns are enticing.
At the end of the day, Chinese investors need somewhere to park their cash. With real estate still in turmoil, bond yields now paltry and capital controls limiting their ability to invest abroad, big dividend-paying domestic giants are an appealing opportunity.
Write to Jacky Wong at jacky.wong@wsj.com
(END) Dow Jones Newswires
January 27, 2025 05:30 ET (10:30 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
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