The reason for the impressive surge in the H-shares of China bank stocks
On May 10, 2024, the H-shares of the China Banks rose substantially. The four largest state-owned banks in China ended the day with the following closing prices:
- Industrial and Commercial Bank of China (ICBC) closed at 4.53 HK$ (a 52 week high)
- China Construction Bank (CCB) closed at 5.64 HK$ (a52 week high)
- Bank of China (BOC) closed at 3.74 HK$ (a 3-year high)
- Agricultural Bank of China (ABC) closed at 3.74 HK$ (a 3-year high)
News reports that the China authorities are considering the the City's proposals to reduce the 20% dividend withholding tax on stocks purchased through the Southbound Stock Connect account for the impressive gains in the stock prices of the Chinese banks.
The dividend withholding tax, in its current form, represents an impediment to income investors in China to hold H-shares for their dividends. This is because the tax substantially reduces the yield of the H-shares compared to the A-shares listed on the mainland bourses. The elimination of the withholding tax will make it more appealing for China investors to invest in H-shares for dividend income.
The approval of such a proposal will bode well for H-shares of China stocks currently trading on the Hong Kong Stock exchange, expecially dividend yield plays such as the SOE banks and the SOE telecom stocks.