The Rise of High Dividend Assets in Hong Kong: What's Next?

The chart below highlights stocks listed on both the Hong Kong and A-share markets with dividend yields greater than 7%, showing that these companies have performed well this year.

According to Jin10 Data, market opinions suggest that the strong performance of high-dividend assets is driven by three main factors: policy support, the demand for catch-up growth, and changes in the interest rate environment, all contributing to the robust performance of high-dividend assets. This sector is expected to have significant potential moving forward.

Policy Support: According to a morning announcement from the People's Bank of China, the establishment of the "Securities, Funds, and Insurance Companies Swap Facility (SFISF)" has been decided, supporting eligible securities, funds, and insurance companies in using assets like bonds, stock ETFs, and constituents of the CSI 300 as collateral to exchange for high-grade liquid assets such as government bonds and central bank bills.

Catch-Up Demand: In this market cycle, the performance of high-dividend assets has lagged compared to other sectors. As other sectors have seen significant gains, funds are gradually shifting towards undervalued high-dividend assets, creating catch-up demand and driving up the prices of related stocks.

Declining Interest Rates and Long-Term Fund Support: The current market environment shows a clear downward trend in interest rates, coupled with the gradual entry of long-term funds, which further enhances investor interest in high-dividend assets. Notably, some leading dividend stocks have yields exceeding 5%, making this return level attractive to long-term investors in a low-interest-rate environment.

Guosheng Securities believes that the latest policies will support high-dividend strategies. For high-dividend companies, major shareholders can increase their stakes at a lower cost, potentially raising the dividend payout ratio and attracting more investors seeking stable returns.

It's worth noting that high-dividend assets are primarily concentrated in traditional sectors such as banking, energy (e.g., coal and oil), and utilities (e.g., electricity and water). These sectors tend to have stable cash flows and profit models that are less affected by economic cycles, allowing them to consistently provide high dividends to shareholders.

In fact, since 2024, institutional investors have maintained a positive outlook on the high-dividend sector.

Tao Can from Jianxin Fund stated that high-dividend strategies exhibit strong appeal in the current economic environment. High-dividend stocks usually offer stable returns and relatively low valuations, making them a preferred choice for investors seeking stable returns while avoiding market risks.

The influx of capital has also been a significant reason for the surge in the high-dividend sector. As market attention on high-dividend stocks increases, more funds are flowing into this sector, driving up its prices. The influx of southbound funds and the allocation demands from institutional investors have provided strong financial support for the high-dividend sector.

Galaxy Securities suggests that a policy turning point may be emerging, with potential cuts in reserve requirements and interest rates, as deposit rates are expected to be lowered again to stabilize bank interest margins. Ongoing fiscal efforts are favorable for government investment, stimulating accompanying financing needs and supporting short-term credit issuance. Optimizations in real estate policies further boost demand, with purchase restrictions and adjustments to existing mortgage rates being gradually implemented, accelerating inventory turnover for commercial housing and improving liquidity for real estate companies, thereby aiding the optimization of banks' asset quality. The relative cost-effectiveness of high-dividend assets in a low-interest-rate environment deserves continued attention.

Dongwu Securities points out that under the pressure of "asset scarcity," absolute return funds are likely to increase their allocation to high-dividend assets. Currently, both short- and long-term interest rates are trending downward, and absolute return funds, represented by insurance asset management, are expected to continue increasing allocations to undervalued high-dividend sectors. The trading crowding in high-dividend assets has not yet peaked, indicating room for valuation recovery.

Guangfa Securities has previously stated that a high-dividend strategy focuses on stocks with relatively high dividend yields as investment targets. This classic investment strategy has stood the test of time, demonstrating enduring appeal after over a century of scrutiny in both domestic and international markets.

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