Photographer: Giulia Marchi / Bloomberg
Photographer: Giulia Marchi / Bloomberg
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After recovering from its worst month since 2019, the Chinese yuan is facing a new wave of selling pressure as hundreds of companies prepare to change currency to pay dividends.
Chinese companies listed on Hong Kong are expected to pay dividends of about $ 68 billion this year, which would be almost 17% higher than in 2020. This means they will intensify the exchange rate of yuan for city dollars in the coming months.
This comes after the yuan recovered around 0.4% from the 1.3% drop in March, when risk assets were sold due to a rise in Treasury yields. The payments season, which is starting to pick up strength this month and is expected to peak in August, will further suppress the currency, in addition to the strength of the dollar and the reduction in the performance premium against the dollar. rest of the world. On top of that, uncertainty over tensions between China and the United States continues to hurt sentiment.
Recovery hat
Yuan under pressure as companies prepare to pay dividends
Source: Bloomberg
“Dividend outflows are increasing pressure on the yuan, in the context of tensions between the United States and China,” said Trang Thuy Le, Asian currency strategist at Macquarie Capital Ltd. reinforce the greenback in the fourth quarter. “The dollar-yuan rate should largely reflect this path.”
More than 400 companies will distribute $ 65 billion in dividends from April to September alone, and the payment will peak in August, at $ 21 billion, according to data collected by Bloomberg.
Companies pay more to shareholders in part because they have excess idle cash while refraining from expansion and also like them hope to retain investors.
Of course, the dividend season is unlikely to lead to a dramatic drop 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 can already own and which can be used to pay dividends. In addition, the People’s Bank of China is unlikely to allow for a sharp depreciation, as this could hamper its drive to attract foreign inflows and promote global yuan use.
In addition, the dollar remains the main driver of yuan movements today. While banks helped customers sell the currency during last year’s payment season, it gained over the summer amid falling dollar.
Of course, one beneficiary of the move is the Hong Kong dollar. The currency, which fell to a one-year low this month, will experience stronger demand in the coming months. On Monday it rose to 7.77 per dollar, while the land yuan fell 0.1% to 6.5256.
The single largest amount of dividend payment will arrive on August 5, when China Construction Bank Corp. delivers $ 12 billion to its shareholders. And on May 20th China Mobile Ltd. will distribute $ 4.6 billion.
– With the assistance of John Liu, Ran Li, Yue Pan, Jeanny Yu and Livia Yap
(Add Monday prices to the third and new paragraph)