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Stocks

Dividends luring foreign investors to Hong Kong shares

Investors flock to cash-rich state enterprises after massive payout

HONG KONG -- The market is taking a bullish turn as foreign investors throng to cash-rich shares here, with a massive surprise dividend hike by a state-owned coal miner spurring even more buying during the peak of earnings season.

A sense that the U.S. will take a cautious approach to monetary tightening has led Treasury yields to dip, and investors have branched out in search of high returns. The Hang Seng Index peaked in the high 24,000 range earlier this week for the first time in around 20 months.

China Shenhua Energy announced March 17 a special dividend of 49.9 billion yuan ($7.24 billion) as it reported an increase in profit. Combined with its regular dividends, it will pay shareholders a total of 59 billion yuan, or 2.4 times the company's net profit last year. Shares in the company closed up 16% Monday, the first trading day after the announcement.

The state coal company said it issued the special dividend because its proportion of liabilities to assets was fairly low, so it had no major repayments to make, and its capital investment had been low lately, so it decided to return money to shareholders. China Shenhua had over 150 billion yuan in undistributed profits at the end of last year.

Some mused that Beijing may have pressured the company to make the payout, though the coal miner denies this. Xiao Yaqing, chairman of the State-owned Assets Supervision and Administration Commission, urged listed state enterprises to focus more on their share prices and dividends at a March 9 press conference.

State-owned companies like China Shenhua that are a part of an oligopoly often have vast profit stores, but many are in sectors with little room for growth. Beijing probably intends to reallocate the dividends it absorbed for cultivating promising new sectors like semiconductors, plus lowering taxes and funding social security, says an analyst at the Aizawa Securities Investment Research Center.

Besides the state, small shareholders reap the benefits of payouts as well. Investors are already seeking out cash-rich issues with lots of room to pay dividends, says the Aizawa analyst -- notably utilities including communications, energy, electric, and gas companies.

State-owned telecom company China Mobile, whose shares enjoyed a bump thanks to association with China Shenhua, likewise announced a modest dividend hike Thursday. Major oil companies will begin reporting earnings in earnest next week.

Many Beijing-owned enterprises factor in the Hang Seng Index. Dividend-hungry foreign investors likely will continue to support the market.

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