Reforms to China’s capital markets currently under consideration could significantly boost demand for stocks, lifting the share prices of the country’s seafood companies.
The Nine-Point Guideline action plan published 12 April by the State Council seeks to restore investor confidence by encouraging companies to pay higher dividends while also upping corporate governance standards for listed companies.
Described by Bloomberg as a “once-a-decade” capital market reform, the plan requires companies to detail their dividend plans before they go public and provides rewards to firms that increase their profit distribution while punishing those that don’t meet their outlined targets by disqualifying them from inclusion in premium indexes, such as the CSI 300 Index, which represents the top 300 stocks traded in China.
Additionally, the plan calls for higher fees for frequent trading and tighter supervision of lighter-traded firms. Firms must also maintain a minimum annual revenue of CNY 300 million (USD 41.5 million, EUR 38.5 million) to remain listed.
“This is a massive event for China’s stock market as it will drive a reversion to investing for value, rather than speculation,” Shanghai Youpu Investment Executive Director Wang Mingli said. “Everyone is going to have to take a closer took at their portfolio and reassess if their trading style and the companies they picked are consistent with these rules, which will define investing for years ahead.”
Leading institutional investors have reacted positively to the announcement, with Goldman Sachs suggesting the valuations of Chinese shares on the main Shanghai and Shenzhen markets could rise by up to 40 percent. Swiss bank UBS upgraded its recommendations for stocks listed in Hong Kong, where mainland firms have traditionally sought listings for exposure to international investors.
Higher share prices would make for more fundraising options for leading Chinese seafood firms like Guolian Aquatic, which has seen its share price drop from CNY 5.16 (USD 0.72, EUR 0.67) to CNY 3.33 (USD 0.46, EUR 0.43), and Zoneco Group, which recently ceased scallop farming and saw its share price fall from CNY 4.11 (USD 0.57, EUR 0.53) to CNY 3.24 (USD 0.45, EUR 0.42) in the past 12 months. Tuna-focused Shanghai Kaichuang Marine International Co has also seen its share price drop from CNY 11.06 (USD 1.54, EUR 1.43) to CNY 9.40 (USD 1.31, EUR 1.22) per share.
Much will depend on whether China can close the gap on dividend payouts and corporate governance, according to one Beijing-based stock trader, and the low level of share buybacks by Chinese corporations is also an issue for investors.
“Chinese corporations rarely buy back shares, and that’s one of the ways of attracting people to hold your shares and to support the share price,” the trader told SeafoodSource.
Chinese stocks remain cheap and underperforming by international comparison. The S&P 500 index of U.S. blue chip stocks rose 22 percent in 2023, whereas the CSI 300 Index dropped 13 percent in value due to a series of factors worrying investors, including an unraveling of China’s real estate market and mounting political and trade tensions between Beijing and Washington.
