HK to see drop in dividend growth - Markit

Shareholders in basic resources companies are expected to see the biggest dividend cuts in 2013 but the automobile sector is a notable bright spot.
The Chinese state council’s plan, announced this year, to clean up pollution is expected to impact demand for coal.
The Chinese state council’s plan, announced this year, to clean up pollution is expected to impact demand for coal.

Dividend growth in Hong Kong is set to slow this year, with even the dividend-rich banking sector taking a hit, data research group Markit says.

Aggregate dividend growth for companies in the Hang Seng Composite index, which covers the bulk of the Hong Kong stock market, is projected to slow to 8.6% in 2013 from an average annual rate of 15.1% in the previous three years.

Six out of 19 Hong Kong sectors are expected to see slower or negative growth, Markit says.

It predicts that basic resource stocks will take the biggest hit, with dividends set to drop 17.2% as mining groups deal with the Chinese state council’s plan to clean up pollution, dragging on coal demand.

Hong Kong's three biggest listed coal producers – Yanzhou Coal Mining, China Coal Energy and China Shenhua Energy ­– are all likely to cut their dividends this year, Markit says.

Meanwhile, dividend growth in the banking sector is expected to slow to 10.6% from 17.9% in 2012 due to increased regulation - including Basel III and Beijing’s clampdown on lending practices - and the slowing Chinese economy.

“Banks alone account for over 40% of total payout in the index and, amid an increasingly challenging operating environment... the high dividend growth rate seen in the past may be a matter of just that - the past,” Leanna Lim, an analyst for APAC dividend at Markit, told FinanceAsia.

The big four Chinese banks – Agricultural Bank of China, Bank of China, Industrial & Commercial Bank of China, and China Construction Bank – are all expected to raise their dividends but rising overdue and non-performing loans could yet curtail payouts. UK-based bank HSBC, meanwhile, is forecast to lift its dividend by 17.3%.

Another sector where dividends are seen shrinking this year is food and drink, following the outbreaks of bird flu and general concerns about food safety, as well as the floating pig carcasses in a river in Shanghai. Dividend payouts here are expected to drop by 9.5% in 2013, according to Markit.

However, there are a few bright spots and none brighter than the automobile sector where dividend payments are forecast to jump by 56.6% on 2012. Markit expects BYD, the carmaker backed by Warren Buffett, to resume dividend payments this year.

Brokerages, whose earnings are pegged to the performance of markets, are expected by Markit to deliver dividend growth of 14.8%, with IPO volumes picking up in 2013 and the Hang Seng up about 5% so far this year.

Oil and gas, meanwhile, is set to post a 15.7% rise in dividends, with the largest payout coming from Cnooc following its acquisition of Nexen, the Canadian group.

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