A sudden surge in volume for Lion-OCBC Securities China Leaders ETF (see chart) was probably caused by a couple of announcements made by the managers of the ETF and a Bloomberg story related to dividends and tax.
On June 24, China Leaders ETF declared a dividend of $0.0456 cents per unit, translating into a dividend yield of 3%. Last July, the ETF announced a dividend per unit of $0.468. As of May 31, the net tangible asset (NTA) per share of China Leaders ETF stood at $1.52. The dividends will be paid on July 22, with the ex-date on July 1.
As a background, China Leaders ETF aims to replicate as closely as possible the 80 largest Stock Connect-eligible Chinese companies in the Hang Seng Stock Connect China 80 Index.
According to the announcement by its manager, the ETF has been approved by the Monetary Authority of Singapore (MAS) under the Enhanced-tier fund tax scheme. The tax exemption status is for the life of the fund, provided the fund continues to meet all conditions and terms set out by MAS and legislation under the Income Tax Act. The announcement says that distributions made by the Enhanced-tier fund should be exempt from Singapore income tax in the hands of unitholders.
According to accounting and advisory service provider MSA, for individuals owning Chinese stocks listed on the Shanghai and Shenzhen stock exchanges, dividend income is subject to a 20% tax rate. Dividends from shares may be eligible for a 50% or 100% tax deduction, depending on the holding period.
Interestingly, on May 9, Bloomberg reported that China is considering a proposal to exempt individual investors from paying dividend taxes on Hong Kong stocks bought via Stock Connect.
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“Regulators including the China Securities Regulatory Commission and the State Taxation Administration are reviewing a plan submitted by Hong Kong to waive the 20% tax on dividends from Hong Kong stocks bought via the link that connects to Shanghai and Shenzhen,” Bloomberg reports.
The proposal’s aims include a likely attempt to avoid double taxation and align fairer arrangements for investors both in Hong Kong and China. Unlike the Chinese exchanges, Hong Kong has no tax on dividends. Part of the reason for the proposal is attributed to the Hong Kong Exchange’s attempt to attract more investors through attractive products and incentives.
“The proposal comes as Hong Kong strives to revive its market after a prolonged initial public offerings and trading volumes downturn. Activity has picked up recently after the China Securities Regulatory Commission” issued a series of supportive measures, including expanding the scope of the Stock Connect,” Bloomberg says.
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The more popular and liquid Lion-OCBC Securities HS Tech ETF, which aims to replicate the Hang Seng Tech Index movement, has not reported dividends.
Separately, selected developers and REITs appear to replace bank loans with bonds. For instance, on June 26, Ho Bee Land H13 appears to be considering the issuance of a five-year fixed rate unsecured green bond to be issued under its $800 million multi-currency medium-term note programme. Neither price nor amount was indicated.
According to Ho Bee’s FY2023 financial report, $479 million of debt is likely to mature in the current calendar year.
Elsewhere, Sabana Industrial REIT issued a $100 million 4.15% sustainability-linked guaranteed bond on June 25. Market watchers suggest that this bond will likely replace a $93 million bank loan due in 2025.
