Photographer: Giulia Marchi / Bloomberg
Photographer: Giulia Marchi / Bloomberg
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After China’s yuan bounced back from its worst month since 2019, it’s a new wave of selling pressure as hundreds of companies prepare to exchange the currency to pay dividends.
Chinese companies listed in Hong Kong are expected to pay nearly $ 68 billion in dividends, which is nearly 17% higher than the amount of 2020. That means they will exchange the yuan for the city’s dollar in the coming months.
This comes after the yuan fell 0.4% from the 1.3% drop in March, when risk assets were sold due to a rise in treasury yields. The payout season, which starts steaming this month and is expected to peak in August, will further depress the currency, in addition to the strength in the dollar and a declining yield premium in the rest of the world. On top of that, the uncertainty over tensions between China and US sentiment continues to plague.
Rebound Roadblock
Yuan under pressure as companies prepare to pay dividends
Source: Bloomberg
“The outflow of dividends is putting pressure on the yuan against the backdrop of tensions between the United States and China,” said Trang Thuy Le, currency strategist at Macquarie Capital Ltd in Hong Kong. strengthens the rookie in the fourth quarter. “The dollar-yuan rate should largely reflect the way.”
More than 400 companies will distribute $ 65 billion in dividends alone from April to September, with the payment peaking at $ 21 billion in August, according to data compiled by Bloomberg.
Businesses in part pay more to shareholders because they have excessive idle cash because they do not expand, and also if they hope to retain investors.
It is unlikely that the dividend season will lead to a dramatic shift in the currency. This is because not all companies need to sell the yuan in the spot market for the Hong Kong dollar, which they may already own and can use for dividend payments. The People’s Bank of China is also unlikely to allow sharp depreciation, as it could hamper its pressure to attract foreign inflows and promote the yuan’s global use.
The dollar remains the biggest driver of yuan movements these days. Although banks helped customers sell the currency during the payout season last year, it suffered setbacks during the summer amid declines.
A beneficiary of the move is, of course, the Hong Kong dollar. The currency, which has fallen to a one-year low this month, will have stronger demand in the coming months. It rose higher to $ 7.77 per dollar on Monday, while the national yuan fell 0.1% to 6.5256.
The largest single dividend payment will be reached on 5 August China Construction Bank Corp hands over $ 12 billion to its shareholders. And on May 20 China Mobile Ltd. will distribute $ 4.6 billion.
– With the help of John Liu, Ran Li, Yue Pan, Jeanny Yu and Livia Yap
(Add Monday prices in the 3rd, 9th paragraph)