Source: Securities Times.
Author: Yu Shipeng

On the evening of November 15, the China Securities Regulatory Commission issued the "Guidance No. 10 on Regulating Listed Companies — Market Cap Management" (hereinafter referred to as the "Guidance"), which consists of 15 articles aimed at further guiding listed companies to focus on their investment value and genuinely enhance returns for investors. The Guidance clarifies the definition of market cap management and the responsibilities and obligations of relevant parties, as well as specific requirements for major index constituents and companies with long-term net asset value below par.MergerIt requires listed companies to manage their market cap in accordance with the law, place great emphasis on investor protection and returns, and actively utilize tools such as restructuring, while also mentioning that companies with long-term net asset value below par should develop plans for value enhancement, and major index constituent companies should establish market cap management systems.

Public funds believe that this "Guideline" is more beneficial for improving the market value management level of listed companies, and for dividend-type assets that provide stable dividends over the long term, it is a significant bullish signal, indicating a bullish outlook on the performance of dividend assets in the future.

Today, the dividend industry sector listed on HKEX collectively rose, with stocks in steel, infrastructure, banks and other sectors all increasing. The steel sector in HK stock market saw significant gains, as of now,$CHONGQING IRON (01053.HK)$However, it is worth noting that due to the impact of the halving event, the income of the mining community is not optimistic recently, and the unit computing power income has reached the lowest level in history. At the same time as the computing power is decreasing, the mining community has also been increasing its selling pressure, becoming one of the biggest selling pressures in the market. From June 13 to June 24, the US Bitcoin ETF also experienced a continuous seven-day net outflow of funds, but recently it has started to turn positive.$ANGANG STEEL (00347.HK)$Increased by nearly 8%.$MAANSHAN IRON (00323.HK)$up over 6%.

The building materials stocks listed on hkex rose.$CNBM (03323.HK)$Increased by more than 8%.$BBMG (02009.HK)$rose more than 6%,$CONCH CEMENT (00914.HK)$Increased by more than 5%.

The stated-owned enterprises listed on hkex in china mainland banking have collectively risen.$BANKOFZHENGZHOU (06196.HK)$Surging more than 9%.$MINSHENG BANK (01988.HK)$Increased by over 5%;$CEB BANK (06818.HK)$up nearly 5%. $CITIC BANK (00998.HK)$ 、$JIANGXI BANK (01916.HK)$rose more than 4%,$ABC (01288.HK)$、 $BANK OF CHINA (03988.HK)$ 、 $ICBC (01398.HK)$ Up more than 3%.

Explicit requirements have been set for market value management.

Market value management, as referred to in the "Guidelines", is defined as the strategic management behavior that listed companies implement to enhance the company's investment value and shareholder return capability based on improving company quality. Specifically, the Guidelines require listed companies to improve their operational efficiency and profitability based on enhancing company quality, and to lawfully and compliantly utilize tools such as mergers and acquisitions, stock-based incentives, employee shareholding plans, cash dividends, investor relationship management, information disclosure, and share buybacks in accordance with actual conditions, promoting that the investment value of listed companies adequately reflects their quality.

Yang Delong, chief economist of Qianhai Kainyu Fund, told Securities Times reporters that compared to previous drafts and other versions, this "Guideline" presents more reasonable requirements for listed companies' market value management, with appropriate looseness and strictness, which is more conducive to improving the level of market value management of listed companies and better protecting investor interests. This primarily includes appropriately relaxing related requirements for long-term low valuation companies' valuation enhancement plans and increasing flexibility in handling stock price fluctuations.

This "Guideline" explicitly lays out requirements for market value management. Among them, Article 9 of the Guidelines states that long-term low valuation companies should formulate a valuation enhancement plan for listed companies and disclose it after the board of directors' review. The content of the valuation enhancement plan should be clear, specific, and executable, and should not include language that may cause ambiguity or mislead investors. Long-term low valuation companies should evaluate the implementation effectiveness of the valuation enhancement plan at least annually, and if improvements are needed post-evaluation, they should disclose these after board of directors' review. Long-term low valuation companies with a price-to-book ratio below the industry average should provide a specific explanation of the execution status of the valuation enhancement plan during their annual performance briefings.

At the same time, Article 8 of the "Guidelines" proposes that the main index constituent companies should establish a market value management system for listed companies, which must clearly define at least four major matters: first, the specific department or personnel responsible for market value management; second, the responsibilities of directors and senior management; third, the specific monitoring and early warning mechanism for the market value, PE, PB, or other applicable indicators of the listed company and the average level of these indicators in the industry; fourth, the response measures when the listed company's stock price experiences a short-term consecutive or significant decline.

Strengthen corporate governance to better showcase inherent value.

The release of this "Guideline" is a significant move by the regulatory body in market value management. Relevant public fund research personnel stated to the Securities Times reporters that the "Guideline" is beneficial in encouraging listed companies to place greater emphasis on long-term sustainable development, urging them to showcase their inherent value better through strengthened corporate governance, and to adopt more proactive measures to increase shareholder returns, such as dividend policies and share buyback plans.

A mid-sized public fund researcher from South China told Securities Times reporters that the release of the "Guideline" reflects the policy continuity of regulatory authorities in promoting the quality improvement of listed companies. This person stated that in recent years, the China Securities Regulatory Commission has continuously promoted improvements in the quality of listed companies, supporting and guiding them to enhance operational efficiency and profitability, improve the quality and transparency of information disclosure, and strengthen communication and interaction with investors, using a combination of dividends, buybacks, and major shareholder shareholdings to enhance investment value. In April this year, the "State Council's Several Opinions on Strengthening Regulation to Prevent Risks and Promote High-Quality Development of Capital Markets" clearly required the promotion of investment value enhancement of listed companies and the establishment of guidelines for market value management.

This "Guideline" connects with a series of policies since September 24, reflecting the high-level emphasis and care for capital markets and the strong will and determination to build a high-quality capital market. A fund manager from a mid-sized public fund in Shanghai stated that the gradual introduction of measures to promote mergers and acquisitions, guidelines for market value management of listed companies, incentive mechanisms for share repurchase of listed companies, and supporting policies for medium- and long-term capital entering the market helps provide continuous momentum for market upward movement.

Data shows that, as of November 15, over 95% of listed companies have held performance briefing meetings this year, with the number and amount of share buybacks and cash dividends reaching historic highs, and the number of interim dividends increasing almost threefold. A researcher from a small public fund in the north told Securities Times reporters that, overall, an active market atmosphere is forming in which listed companies engage in communication with investors and adopt multiple measures to enhance the investment value of listed companies.

Bullish on dividend assets.

According to Wind statistics, as of now, the Wind PB index has risen by over 30% since September 18, including the stocks of large traditional industries such as banks, chemicals, and petrochemicals, while small-cap companies are mainly concentrated in areas like building materials and home furnishings. Combined with this "Guideline" and recent market performance, public funds are bullish on the future performance of dividend assets.

Companies with stable cash flows, especially those in industries closely related to people's livelihoods, such as transportation, telecommunications, and banks, have a relative advantage as dividend-paying enterprises. In this context, their performance is better. The aforementioned public fund researcher from South China stated that the release of the guidelines, coupled with the new "Nine National Policies" and the market cap management demands of state-owned enterprises, may further highlight these companies' willingness to distribute dividends. The two major advantages of stable cash flow and strong dividend willingness make dividend assets a preferred quality ballast asset for investors.

The aforementioned public fund researcher from South China particularly noted that dividend assets have outperformed the overall market for an extended period, and their investment cost-effectiveness is notably apparent in a fluctuating market. From a long-term perspective, in the current low-interest-rate era, dividend assets that can provide dividend income may be more worthy of long-term holding by investors.

In addition, some public fund professionals believe that the low-interest-rate environment in the interest rate reduction cycle is bullish for dividend strategies. Under the guidance of state-owned enterprise reform and market cap management, the dividend potential and willingness of state-owned enterprises are strong, and the allocation value of high-dividend, low-valued state-owned enterprises is increasingly prominent, especially in the dividend assets of state-owned enterprises listed on HKEX. The current market is in a performance vacuum period, and under the backdrop of the release of these guidelines, valuation indicators outperform performance indicators. The activity level of thematic sectors is expected to be maintained, and searching for turning points in capacity supply and performance is a more effective strategy, likely to appear in some midstream manufacturing sectors.

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Editor / jayden