China’s Securities Regulator Warns Companies To Increase Dividends & Buybacks… Or Else

Authored by Mike Shedlock via MishTalk.com,

Hoping to boost stock market prices, China mandates more dividends and buybacks…

Increase Dividends or Else

2/4
This is the equivalent of having these companies borrow and distribute the proceeds to investors in the form of dividends and buybacks. This might boost stock prices in the short term, but it’s longer-term impact is mixed.

— Michael Pettis (@michaelxpettis) December 17, 2023

Demanding More Debt

4/4
It’s important to see the systemic nature of the transfers. An increase in household income will effectively have been funded by an increase in business debt. Whether or not this promotes rebalancing depends on which households benefit and what they do with the higher income.

— Michael Pettis (@michaelxpettis) December 17, 2023

Terrible Policy

Pettis presents a plus side and a minis side. I see it as a foolish mandate and an act of desperation.

Unlike Pettis, I fail to see how forcing companies to use their cash, increase leverage, or take on unwarranted debt hoping to fuel a stock market rally can possibly be a good thing.

If the debt is not serviceable by profits, it will weaken the corporations. How can that rebalance anything?

Technically Speaking

Technically speaking the Shanghai Index appears poised for a big move one way or another after a lengthy consolidation. There are several lower highs and higher lows.

Shanghai Composite Index, Bloomberg

Since the initial move was lower, and triangles are continuation patterns, the expected break is lower, but I don’t know, nor does anyone else.

I do know bad policy, and the action by Chinese regulators is terribly unsound.