Goldman Sachs bullish on China shareholder returns

Investing.com-- A trend of increased shareholder returns among Chinese companies, particularly through dividends and buybacks, are taking shape in China, Goldman Sachs analysts wrote in a note. 

GS said it was bullish on the theme of shareholder returns in Chinese equities, stating that the trend was a “rewarding strategy” since 2021. GS said listed Chinese companies had returned more than 2 trillion yuan ($280 billion) each year over the past three years.

Outsized dividends and buybacks had kept some brokerages bullish on Chinese markets, even as broader valuations declined substantially as a post-COVID economic rebound in China largely failed to materialize. China’s benchmark Shanghai Shenzhen CSI 300 and Shanghai Composite indexes had slumped to pre-COVID lows earlier in 2024, although they did rebound from the levels. 

GS said it remained bullish on Chinese shareholder returns on the prospect of a strong policy push from Beijing to improve returns, with reforms to Chinese state-owned enterprises (SOEs) reflecting this notion.

Chinese companies also have strong cash balances and cashflows, retaining the ability to keep up shareholder returns despite near-term economic headwinds. 

GS also presented dividend incomes from Chinese firms as a stable income, which are attractive in the face of high global interest rates and increased economic uncertainty. 

Additionally, low participation rates in Chinese markets presented the potential for increased value from more participation by institutional investors. Deleveraging from the property market, following a prolonged downturn in the sector, could also present opportunities for diversification into Chinese equities. 

GS overweight on China TMT, SOEs 

The brokerage reiterated that it was overweight on China’s technology, media, and telecom sector, and was also biased towards “high-quality” SOEs. Its bullish outlook on strong shareholder returns also factored into its stance. 

Major picks by the brokerage include tech giants Tencent Holdings Ltd (HK:0700), JD.com (NASDAQ:JD) (HK:9618) and BYD Co Ltd (HK:1211), financials including Industrial and Commercial Bank of China Ltd (SS:601398) and Bank of China Ltd (SS:601988), along with a range of automakers, consumer staples and utility stocks.