Beneficiary stocks of the most beneficial new policies

Looking back at the volatile market of the past month, high volatility has become the norm, with many stocks rising and then falling back to their original positions. When looking at the recent market performance, only targets with actual EPS growth benefiting from this round of policies can generate stable returns.

For example, the Huatai-PB CSI Central State-owned Enterprises Dividend ETF (513910) and the Hang Seng Dividend ETF (159726) in the Hong Kong stock market have seen increases of 28% and 24% respectively since the low point in September, outperforming the 20% increase of the Hang Seng Index during the same period. Starting from September 26th when the market began, the Huatai-PB CSI Central State-owned Enterprises Dividend ETF has risen by 15%, not inferior to the most resilient Hang Seng Tech Index.

In fact, it's not about how much elasticity these two dividend stocks have, but whether they can maintain their gains after the rise is the key to this round of market trends. In a high volatility market, it's easy to give back profits, and the stability of dividend stocks clearly fits the current market environment better.

Similarly, dividend stocks are also the core assets benefiting the most from this round of policy trends. If you're unsure what to buy, dividend stocks are still worth paying attention to.

1. The logic of dividend stocks remains unchanged

The main pricing logic for dividend stocks in the market can be divided into three points: 1. Certainty in a low-growth environment; 2. Downward trend in risk-free interest rates; 3. During the asset shortage cycle, the dividend payout ratio of state-owned enterprises increases, expanding the difference between dividend yield and risk-free government bond rates.

Of course, with the expected policy stimulus from both domestic and foreign investors, the expectation of reversing the low-growth environment exists. Some views may say, "When the bull market comes, why buy high-yield stocks? By then, stocks with improved corporate earnings and other stocks facing challenges will have greater resilience than high-yield stocks."

Indeed, with potential stimulus expectations, varieties that are more sensitive to the macro environment may outperform high-yield stocks, attracting funds to speculate on elasticity space. However, this does not mean that high-yield stocks should not be bought, nor does it mean that their pricing logic has changed.

The reason is that from the perspective of the other two conditions, there has been no change.

The long-term government bond rate close to 2% is still in a downward trend, and it is difficult to see a major reversal in the short term. After all, policy implementation takes time, and improvement in corporate EPS also takes time. Just because there are expectations of policy stimulus, it doesn't mean that funds will blindly chase after targets with greater elasticity.

Before the policy is actually implemented, we can see that the majority of funds are still choosing targets with EPS growth and shareholder return certainty in the near term, such as dividend stocks and internet stocks, while stocks betting on policy strength beyond expectations have almost given back all their gains.

In other words, as long as there is still room for the interest rate differential between government bonds and high-yield stocks, large funds led by insurance funds will continue to increase their allocation to high-yield stocks to cope with the overall environment of interest rate cuts, and this logic still holds true.

Moreover, in addition to the unchanged pricing logic, two incremental policies favorable to dividend stocks have been introduced in this round of policies.

II. Incremental funds for dividend stocks

1. The first batch of 500 billion "swap convenience tools" supports insurance, securities, and fund companies to use bonds, stock ETFs, SSE 300 constituent stocks, and other assets as collateral. Institutions can exchange high-liquidity assets such as government bonds with the central bank and then convert them into money to buy stocks. According to some institutions' estimates, institutions can obtain collateral loans with a cost of 2% to increase their holdings of stocks.

For example, what will an institution do with funds at a cost of 2%? Although this money is obtained through exchange and not free, it is naturally sought after for targets with high certainty and preferably with a safety cushion, such as high-yield stocks.

For instance, the dividend yield of CNOOC in the Hong Kong stock market is 7.46%, higher than the 2.1% of the 10-year government bond. Institutions can use the 2% cost funds to buy CNOOC, creating a 5% arbitrage trading space. This logic is similar to Buffett issuing low-interest yen bonds to increase holdings of high-yield Japanese stocks for arbitrage.

According to Pan Gongsheng, if the first 500 billion is well utilized, there will be a second 500 billion and a third 500 billion. This is a roll-over convenience tool that may become a driving force for the repurchase of dividend stocks in the medium to long term.

1. The policy of "stock repurchase and increase holding re-loan" with an initial quota of 300 billion yuan will help revalue the value of high-yield stocks of state-owned enterprises.

According to Pan Gongsheng, guiding commercial banks to provide loans to listed companies and major shareholders for repurchasing and increasing holdings of stocks. The final interest rate received is approximately 2.25%, and listed companies and shareholders who obtain funds at a 2.25% interest rate can repurchase their own company.

At the time this policy was introduced, the market view was that companies would not repurchase at low stock prices, and now that stock prices have risen, borrowing for repurchase is even more difficult. However, this is different for state-owned enterprises. Due to market value management goals, state-owned enterprises are very proactive in applying for this policy. Last weekend, 8 listed companies under China Merchants Group applied for quotas to repurchase or increase holdings. For example, Sinopec has currently applied for a 700 million yuan increase in holdings and a 900 million yuan repurchase quota, with a funding cost of around 2.25%. The H-share dividend yield of Sinopec is around 8%. This means that by borrowing money at 2.25%, the company can bring confidence to the market through increased holdings and also create a certain arbitrage space for itself. The dividend yield can cover the funding cost, achieving a win-win situation.

Conclusion

Therefore, despite the potential expectation of changes in the overall environment, from the perspective of long-term bond pricing and policy guidance, more incremental funds still choose high-yield stocks. They have not abandoned existing certainty assets to chase after risky assets with greater flexibility.

Even taking a step back, assuming that future policy measures exceed expectations, the assets with core EPS growth are most likely to rise in the future market.

The components of the Hong Kong-listed Central State-owned Enterprises Dividend ETF (513910) and the Hang Seng Dividend ETF (159726) are core assets with strong correlation to the macroeconomy. When social growth picks up, these assets will also benefit, as they are dividend stocks with EPS growth and high dividend yields, and are not afraid of underperforming in the upcoming market.

If you are still hesitating on how to participate in the market under high volatility, embracing certainty through participating in the Hong Kong-listed Central State-owned Enterprises Dividend ETF (513910) and the Hang Seng Dividend ETF (159726) through ETFs is also a good choice