Oil giants rally on reform expectations

China's State-owned oil majors rallied on Monday as expectations over accelerated reform of State-owned enterprises grew after regulators vowed new measures to bolster the competitiveness of SOEs.

On Monday, PetroChina Co Ltd, the listed arm of State-owned energy giant China National Petroleum Corp, jumped 7.17 percent — the biggest gain in about three weeks — to close at 7.62 yuan ($1.08) per share after falling by more than 17 percent from its recent high in early May.

The other two State-owned oil majors — China Petroleum & Chemical Corp and CNOOC Ltd — rose 5.34 percent and 2.06 percent on Monday, respectively.

The rally among energy heavyweights underpinned a 0.28 percent gain for the Shanghai Composite Index on Monday, which closed at 3221.45 points, whereas other benchmark indexes tracking A shares dropped.

Experts said the gains by oil majors may be a sign that investor sentiment of "the valuation system with Chinese characteristics" — which suggests that the valuation of SOEs has the scope to improve — has strengthened following regulators' latest commitments to boost the development of listed SOEs.

Wang Jianjun, vice-chairman of the China Securities Regulatory Commission, said over the weekend that the top securities regulator will work with other authorities to implement a new round of plans to deepen SOE reforms and improve the competitiveness of listed SOEs.

That will be part of the country's efforts to improve the quality of listed companies, which also seek to support the development and growth of private listed companies, Wang told the Annual Congress of China Association for Public Companies and the 2023 Chinese Listed Companies Summit on Saturday.

Zhao Shitang, vice-chairman of the State-owned Assets Supervision and Administration Commission of the State Council, said at the summit that the commission will support central SOEs leveraging the capital market and achieving outstanding performance in terms of their main business, governance and integrity.

Meng Lei, China equities strategist at UBS Securities, said he expects SOE reforms to accelerate and boost the profitability and dividend payout ratios of State-owned listed companies while improving their corporate governance.

To assess the sustainability of the market rally of SOEs, Meng said investors can monitor SOEs' interim results, which are set to be released in August and could shed more light on their potential operating efficiency improvements, as well as any further policy guidance on SOE reforms and the valuation system with Chinese characteristics.

"For now, SOEs appear undervalued and trading at only half their non-SOE counterparts' valuations," Meng said. While some SOEs may lag non-SOEs in a number of operating metrics, Meng said he does not think the fundamentals of SOEs are as bad as the large valuation gap suggests.

Wang also vowed to promote the high-quality development of listed companies as a whole, including rolling out a set of regulations for listed company supervision and improving rules regarding mergers and acquisitions and equity incentive plans.

To strictly punish financial fraud by listed firms, Wang said the commission will improve a long-term mechanism aimed at combating financial scams, launch a special program to resolve severe malpractice and misappropriation of funds and step up efforts to hold those involved in fraudulent activities accountable.

Song Zhiping, chairman of the China Association for Public Companies, said the self-regulatory organization will strengthen training for listed company directors, supervisors and senior managers to boost their awareness of compliance and enhance their ability to perform their duties.