During this period, the A-share market has experienced a dual scenario of ice and fire.
On one hand, there is a weak market with continuous index decline and shrinking transactions; on the other hand, there is a significant influx of funds into ETFs, and the five major banks have reached historical highs, becoming a focus of attention.
Such a huge divergence clearly reflects that the market is undergoing a style shift, with funds returning to dividend sectors once again, and this time on a larger scale.
In fact, the dividend indices of both A and Hong Kong stock markets began to retract at the end of May this year. After two months of adjustment and a cumulative correction of over 10%, there have been signs of capital reflowing since early August. In particular, the dividend index of the Hong Kong stock market has rebounded nearly 5% from its low point.
The five major banks reaching new highs is an important reflection of this round of structural market trends.
What is a more prudent choice moving forward?
01
Behind the new highs of the five major banks
Yesterday, the five state-owned banks of ICBC, Agricultural Bank, China Construction Bank, Bank of China, and Bank of Communications once again reached historical highs. They have increased by at least 37% this year, with the most increasing by nearly 50%, significantly outperforming the majority of large companies.
In terms of dividend yield, banks are not the best performers, but the overall performance of state-owned banks has now significantly surpassed all other competitors. The main reasons behind this can be summarized into two major aspects:First, safety. The main theme of this year's funds is to embrace high-yield and certain assets, which are generally found in the financial, coal, electricity, non-ferrous metals, and public utilities sectors. Before the sharp rise, the dividend yield of banks was generally between 5-6%. Although not as high as the coal and public utilities industries, it was enough to outperform the continuously declining long-term Treasury bond rates, making it sufficiently attractive.
At the same time, the performance growth of large state-owned banks has been long-term stable with extremely low volatility, which is very safe. In the current market environment where the demand for capital hedging has greatly increased, this is even more valuable.
Second, a large amount of funds have been replenished to boost the market. Taking the CSI 300 Index as an example, the weight of bank stocks could reach 13.2% before, but in the first quarter of this year, the public fund's position in banks only accounted for 2.46%. In the second quarter, the proportion of bank stocks in the heavy stocks of active public funds was only 2.7%, with a low allocation of up to 10.5%.
However, the performance of bank stocks has exceeded market expectations for two consecutive quarters. At the same time, under the demand for hedging, funds have begun to flow back into bank stocks in large amounts for replenishment. This includes the national team. This year, Central Huijin has made large purchases of broad-based ETFs such as the CSI 300 and the SSE 50. Recently, the trading volume of these ETFs has also frequently fluctuated greatly, and the increase has even doubled.
At the same time, as the first major direction for insurance funds, banks have also significantly benefited from the continuous inflow and increased allocation of insurance funds. According to institutional research reports, in the first half of the year, the total premium income of insurance companies increased by 10.65% year-on-year, and the balance of insurance funds increased by 9.62% compared to the beginning of the year, bringing a large amount of allocation demand for insurance funds.
Such a large-scale and highly consistent increase in funds has all rushed into stable dividend stocks such as finance, energy, and public utilities, leading to even the largest banks being unable to withstand the continuous push of valuations.
Coincidentally, this year, many dividend stocks have risen too sharply in the early stage and have begun to adjust sharply after the high point in May. Except for a few extremely high-quality core assets, most dividend stocks have回调ed more than 15% from the high point, and now they have formed a good valuation attraction again.
It can be expected that in the future, embracing dividend stocks will continue to be the most important direction for the national team and institutional funds. In addition to banks, coal, non-ferrous metals, public utilities, and other sectors will also be key targets.
Moreover, a large amount of funds will also focus on the Hong Kong dividend sector, which has a higher dividend rate and lower valuation than A-shares.Heavy capital boosts, Hong Kong stocks stage an independent rally
When U.S. stocks and Japanese stocks plummeted in July, Hong Kong stocks demonstrated a very obvious resistance to falls. Since the low point of this month, the Hang Seng Index of Hong Kong stocks has rebounded by more than 5%, significantly outperforming A-shares during the same period, and the signs of an independent rally are becoming more apparent.
There are multiple factors driving this trend.
On one hand, domestic capital continues to flow south to embrace leaders in the fields of technology growth and high-interest areas.
This year, although Hong Kong stocks have followed the decline of mainland A-shares, the cumulative inflow of southbound capital has reached 459 billion Hong Kong dollars, with over 200 billion flowing in just in the past three months, and the vast majority of trading days have seen net inflows.
At the same time, the scale of QDII fund issuance has also been expanding in recent years, with the latest net asset value scale reaching 437.726 billion yuan, a considerable proportion of which is allocated to Hong Kong dividend stock assets. Additionally, mainland public funds that can invest in Hong Kong stocks (excluding QDII) held a market value of 375.7 billion yuan in Hong Kong stocks in the second quarter, a significant increase of 23.0% quarter-on-quarter.
On the other hand, there is an opportunity for inflows of international capital. Previous analyses have indicated that for many years, the Bank of Japan's zero interest rate policy, combined with the U.S. dollar's interest rate hike cycle in recent years, has created a huge interest rate differential, leading to an extremely large amount of carry trade funds.
Reports suggest that the scale of this arbitrage trade is at least in the trillions of U.S. dollars. Most of these funds have been used to buy U.S. stocks,助推ing several major U.S. technology stocks to achieve an epic rally.
However, with the expectation of a Japanese yen interest rate hike and the imminent start of a U.S. dollar interest rate cut, the interest rate differential may accelerate its contraction. At the same time, against the backdrop of both U.S. and Japanese stock markets reaching new highs, the market has begun to shift towards "trading recession," with carry trade funds intending to withdraw in large quantities, thereby exerting selling pressure on U.S. and Japanese stock markets in turn.
J.P. Morgan's Global Chief Equity Strategist, Dubravko Lakos-Bujas, stated that the U.S. stock market is no longer a one-way upward trend but is increasingly centered around economic downturn risks, Federal Reserve policy timing, crowded positions, high valuations, and escalating electoral and geopolitical uncertainties in a two-way game.In the coming period, this concern will become the mainstream of the market.
As a result, some global funds will choose to exit the US and Japanese stock markets and opt for other undervalued markets for risk aversion. This includes the Hong Kong stock market, which has been undervalued for a long time.
The biggest advantage of the Hong Kong stock market at present is its low valuation and high dividend yield. As of August 27, the Hang Seng Index's price-to-earnings ratio was 9.01, at the 13.84% percentile since its listing; the price-to-book ratio was 0.90, at the 4.63% percentile since its listing; and the dividend yield was as high as 4.29%, at the 93.94% percentile since its listing.
Recently, a major news has been circulating in the market. According to Stephen Jen, CEO of the British hedge fund Eurizon SLJ Capital, in recent years, Chinese companies may have accumulated more than $2 trillion in overseas investments because the interest rates on these assets are higher than those on assets denominated in renminbi. When the Federal Reserve lowers interest rates, the attractiveness of US dollar assets will be eroded, and it may stimulate the return of $1 trillion of "conservative" funds. (According to estimates from Macquarie, since 2022, Chinese exporters and multinational companies have accumulated more than $50 billion in US dollar assets.)
Although we cannot know the exact amount of real data and when it will flow back to the country, it is certain that the scale will be very large. Even if a small part flows into the domestic stock market, it can become a strong booster for the stock market.
As an important bridgehead for international trade funds, Hong Kong will benefit more from the Hong Kong stock market.
In addition, there are many positive stimuli in the Hong Kong stock market recently.
For example, the mid-term performance disclosure of the Hong Kong stock market shows that the second-quarter performance of the internet giants, cyclical, medical and other industries has continued to be eye-catching, and these companies have expressed their intention to continue to maintain high dividends, and even announced large-scale repurchase plans, becoming a strong catalyst for stimulating funds to continue to layout the Hong Kong stock market.
Data shows that as of August 27, a total of 216 Hong Kong stock companies initiated repurchases this year, with a total repurchase amount of 174.112 billion Hong Kong dollars, exceeding the whole year of 2023. In the future, as the market further declines and valuations further fall back, the repurchase strength will continue to increase.
In addition, Alibaba has recently officially announced that Hong Kong will be added as the main listing place. The market expects that Alibaba will officially enter the Hong Kong stock connect on September 9, and will attract hundreds of billions of incremental funds from the mainland in the next few months, as well as tens of billions of incremental funds from international funds.These factors will, in turn, lead to more active attention to the Hong Kong stock market.
Therefore, with the joint stimulation of various favorable factors, the probability of the Hong Kong stock market welcoming an independent trend in the coming months is relatively high.
03
Embrace dividend stocks, embrace certainty
After demonstrating the possibility of an independent trend in the Hong Kong stock market in the future, how can we get on board?
It's very simple, just follow the big money.
The big money in the country embraces stable dividend assets and the core assets that can truly go through bull and bear markets. The same applies to the Hong Kong stock market.
These dividend assets generally have strong say and competitiveness in their respective industries. Their business models are safe and reliable, and they have long-term growth certainty, with many even in a monopolistic position.
Moreover, relatively speaking, their dividend yields are higher than A-shares, and the overall dividend yield is even above 7%. Even if the southbound funds buy Hong Kong stocks and pay an additional 20% dividend tax, the difference advantage is still obvious after excluding this factor. At the same time, the volatility of similar targets in the Hong Kong stock market is generally much lower than that of A-shares.
This also means that if you have been allocating stable high-dividend stock leaders, and as long as your luck is not too bad and you don't buy at the high point after group speculation, you can not only gain annual dividend returns far exceeding the risk-free interest rate in the long run, but also have a high probability of gaining huge price difference returns brought by their stock price surges.Of course, if you were to individually uncover these leading companies, it would be both time-consuming and labor-intensive, and the accuracy might not be sufficient. It would be more cost-effective to invest in related funds. For those who wish to invest in leading companies in the Hong Kong stock market with a single click, the Hang Seng ETF Yifangda (513210) with a management fee of 0.5% and a custody fee of 0.1% is worth considering. This ETF tracks the Hang Seng Index, with the target index covering financial, consumer discretionary, and information technology sectors, which together account for more than 70%, including various industry leaders. Moreover, its fee rate is among the lowest in its category, and its excess return is quite good, with a year-to-date return of 9.19% and an excess return of up to 2.09%, and an excess return of 1.59% in the past three months.
For those interested in investing in high-dividend assets in the Hong Kong stock market, the Hang Seng Dividend Low Volatility ETF (159545) is also a good choice, as it essentially covers the leading companies in various industries with outstanding long-term dividend performance.
Moreover, this ETF is the lowest-cost Hong Kong dividend ETF in the market (0.15% management fee + 0.05% custody fee). In terms of performance, its year-to-date return is 8.9%, with an excess return of 3.34% in the past three months.
In addition, this ETF is a quarterly dividend-paying ETF. According to the fund contract, the excess return of the fund is assessed on the last trading day of January, April, July, and October each year, and a dividend can be implemented if the excess return reaches 0.005 yuan per share. On August 16, the Hang Seng Dividend Low Volatility ETF distributed a dividend of 0.016 yuan per share to holders, and based on the current price of 1.049 yuan per share, the dividend yield for this distribution is 1.53%.
04
Conclusion
In investing, choosing the right direction is crucial. Don't be fooled by the current lukewarm markets; as long as you invest in dividend stocks, your investment returns this year will not be bad.
Interestingly, during several interest rate cuts in the US dollar cycle since 2000, the US stock market has followed suit with several declines. In contrast, during each US dollar interest rate cut phase since 1983, the Hang Seng Index has averaged a significant increase of 22%, clearly higher than its performance during the interest rate hike cycle. Among them, Hong Kong dividend stocks have also been an important force leading the Hong Kong stock market to an independent trend.
Now it seems that history is repeating itself once again.
Therefore, if you are optimistic about the future performance of the Hong Kong stock market, you might want to pay more attention to Hang Seng ETF Yifangda (513210) and Hang Seng Dividend Low Volatility ETF (159545).
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