On December 17th, a significant event unfolded in the financial landscape of ChinaThe renowned Guizhou Moutai Company, a leading liquor producer, convened to discuss its performance in the third quarter of 2024. This gathering provided valuable insights into the company's strategic approach to stock management, buybacks, and annual targets, amidst heightened interest in market capitalization management.

During the meeting, top management engaged in a thorough explanation of various issues that have caught the market's attention, reiterating the company’s commitment to effective market capitalization management

The chairman of Moutai, Zhang Deqing, emphasized the company’s serious consideration of various tools for managing market value.

Moutai's focus on market capitalization management was not an isolated interest; several other companies, including Huaihe Energy and Jianfa Co., were also navigating similar waters by announcing plans to acquire assets from their largest shareholders on the same dayThe concerted effort highlights a broader trend among Chinese enterprises to prioritize value management in the market.
A vital backdrop to these developments was the issuance of new regulations by the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) regarding market value management

The regulations delineated four critical pillars: clarifying objectives and directions in value management, utilizing available management tools efficiently, reinforcing positive incentives through robust mechanisms, and maintaining a strict compliance framework.

The call for enhanced market capitalization management is often repeated.
The SASAC's guidelines propose actionable measures for central enterprises, encouraging improvements in mergers and acquisitions, market-oriented reforms, disclosure of information, investor relations management, and stock buybacks

These strategies are critical for Mandarin-speaking companies to elevate their market values in a landscape characterized by both competition and skepticism from investors.

However, while businesses can leverage tools like mergers, restructurings, and buybacks, educating investors about the implications of these actions remains paramountCompanies must communicate directly with investors, addressing any misconceptions or concerns rather than relying on potentially misleading market speculation.

Hence, the SASAC emphasized the importance of bolstering investor relationships, urging company executives to actively engage in performance briefings to showcase competitive advantages and growth potentials.
The frequent conversations surrounding market value management in 2023 signal a clear intention: to enhance investor returns.

Is market value truly manageable?
In China, the concept of market value management closely intertwines with the share division reform initiated in 2005. Following this reform, market value emerged as a significant benchmark within the capital markets

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By 2014, the government explicitly encouraged public companies to establish structured management systems for market value, aiming for legitimate and standardized practices.

However, despite the regulatory frameworks, the understanding of market value management remains fragmented across regulatory bodies, companies, and investors.

At various times, market management practices, cited for being tools of manipulation, have led to skepticism

For instance, in mixed transaction structures that characterized the A-share market, companies sometimes resorted to embellishing financial reports, complicating transactions and creating erratic fluctuations in market valuations.

It is crucial to reiterate that genuine market management should not equate to price manipulation; rather, it focuses on ensuring a company’s operational value is accurately reflected within the capital market.

Effectively, market value management embodies the strategies to enhance a company’s intrinsic value and boost market acknowledgment, thereby improving stock performance

The achievement of this ideal depends heavily on a company's robust operational infrastructure.

Yet, continuous elevation of market value is unattainable without solid growth prospects or effective business strategiesCompanies should ideally manage their market value only when their fundamental business conditions are not adequately portrayed within their market valuations.

The former Chief Financial Officer of a prominent company, Luo Xiaoxi, illustrated practical cases of effective market value management

During her tenure at a leading company, she recognized that insufficient communication with capital markets led to investors harboring outdated perceptions about the firmBreaking down these barriers required consistent roadshows and investor engagement, akin to SASAC's guidelines on improving investor relations.
It is essential, however, to recognize that building strong investor relations cannot occur overnightIt requires a sustained effort over time to shift entrenched perceptions.

Additionally, implementing equity incentives or capital increases when stock prices are high may not be wise strategies.

What types of companies benefit from value management?
Is value management a necessity for all companies?

Perspectives on this topic vary widely

From a regulatory standpoint, companies that require value management typically include major index component stocks such as those in the CSI 300 Index, STAR Market Fifty and Hundred, and Growth Enterprise Market Index.

Moreover, companies experiencing long-standing discounting relative to net asset values also fall under this category, particularly those whose stock prices have consistently traded below their audited net asset values over twelve months.

Yet, the appeal of value management for such companies should be assessed in conjunction with their overall business viability

Achieving value management for underperforming firms must always relate back to whether the firm has sustainable business potential to support its market value.

Furthermore, the effects of dividend issuance on stock pricing can fluctuate significantlyCompanies that have analyzed the impacts of dividends often find that announcements can initially result in stock price rallies.

Analyzing data from January 1, 2010, to October 31, 2024, allows for insights into how dividend announcements affect price movement, showing positive event effects over time with certain biases toward firms with stronger performances.
However, the event effects concerning dividends vary widely based on company performance, indicating mixed results in pricing effects.

Market value management continues to grapple with issues regarding the temporality of these event-based price elevations