Source: Zhitong Finance
Author: Huang Xiaodong

Dai Qing, chief overseas strategy analyst at Cathay Pacific Junan Securities, wrote “Will “China Special Assessment” of Hong Kong Stocks Become “Core Assets”? At the theme conference, it was stated that overall, this conference revolved around two major directions. One wasOffensive attributes, China Special Assessment has a certain trend of both PB and ROE rising in the direction of policy support. The second piece isThe core core of China Special Evaluation is an asset with high dividends in the Hong Kong stock market, and it has a defensive effect.Therefore, as a whole, the Central Special Estimate has both offensive and defensive systems. It can not only cope with overseas fluctuations, but also have the possibility of profit improvement in the direction of policy support, thus achieving an increase in valuation.

Dai Qing pointed out that Hong Kong has three advantages in special valuation assets.First, the overall sample of targets selected by Hong Kong stocks and central state-owned enterprises is actually relatively close to A-shares.In fact, ten years ago, most Hong Kong stocks wereSome traditional sections,Including finance, real estate, property, energy, petroleum, coal, non-ferrous metals, chemicals, etc.These are actually the wave of state-owned enterprise reform and listing from 2003 to 2007, including the listing of some large central state-owned enterprises after 2010.It's just that people's attention has declined over the past few years.These assets are actually some of the key areas of focus for mid-range or high-dividend assets.The overall size of these fields, including sample distribution, industry distribution, and optional range, is actually about the same as A-shares. Therefore, there are actually quite a few Hong Kong stock assets under the optional range of the China Special Evaluation Targets. This is not what people think; it also has advantages.

Second, the current overall valuation of Hong Kong stocks is lower than that of A-shares. Overall two levels. On the first level, Hong Kong stocks were originally affected by certain external geopolitical frictions in February and March, including when overseas liquidity was tight, and Hong Kong stocks took the lead in falling more than A-shares, US stocks, and European stocks. Therefore, the overall decline in some Hong Kong stocks, including high-dividend assets, is estimated to be greater than that of other markets. The corresponding mid-term estimate under this situation includes a much larger range of decline in the overall discount price level of A-shares after the adjustment of the high dividend sector. On the index, Hong Kong stocks were relatively weak compared to A-shares in February, March, and April, and the overall performance of the industry was also weak. If you look at the premium index made up of companies listed on A-shares and Hong Kong stocks at the same time, it is now at an all-time high, which also means that A-shares are much higher than Hong Kong stocks. The opposite isThe extent that Hong Kong stocks are cheaper than A-shares has reached a historically high position close to the top. So looking at Hong Kong stocks as a whole, whether it's the central state-owned enterprises we mentioned, specially-valued, high-dividend assets are cheaper than A-shares.

If you look at specific sectors, you can focus on a few key sectors, such as operators, energy, construction, etc.As far as these sectors are concerned, you can look at their premium rate compared to A shares. The relative premium rate of A shares is the discount rate for Hong Kong stocks. For telecom operators, the premium is 70% for A-shares, and the premium rate increased in February, March, and April. The current premium rate for energy is also around 70%, and petrochemicals is 47%. The premium rate of leading stocks in the construction industry is more than 1 times higher, so this premium rate indicates that Hong Kong stocks are cheaper.

The third major advantage of Hong Kong stocks is their dividend rate.There are two types of living environments for high dividends. One is a volatile market or a bear market, and the second environment is when assets are scarce. As a higher debt-like asset, it is more attractive than bonds, so it is probably in the second situation now. February and March were in the first situation. On the other hand, when the fluctuations were particularly high, people began to switch to assets with high dividends. Interest rates on Chinese bonds actually continued to fall in April and May, and many of the funds were nowhere to be found. If AI doesn't find a good time to buy, it will choose medium specials and high dividend varieties.

The average dividend rate of Hong Kong stocks and state-owned enterprises over the past 12 months is about 6-7 points, which is higher than the average dividend rate for A-shares. The dividend rate of the Hang Seng Index is around 3-4 points, which is 2.5 points higher than the Shanghai Composite Index.In fact, the dividend ratio of Hong Kong stocks has been rising steadily over the past few yearsPart of the reason is that its stock price is recovering, and part of the reason is that the dividend rates of some companies are still rising. The increase in dividend ratios has now reached a relatively attractive level. The interest rate for Hong Kong stocks and central state-owned enterprises at around 6-7 points is much higher than that of many bonds.

Many investors also think about buying high dividends from Hong Kong stocks; their dividends are taxed. Tax collection methods include holding stocks for less than a month where 20 points is more common; if you hold stocks for more than a month but less than 1 year, it's about 10 points; if you hold red-chip stocks, you earn about 28% more; and foreign investors and local investors in Hong Kong pay less. Even if we consider this data and further discount the dividend rates of central state-owned enterprises in Hong Kong stocks, the overall dividend ratio of central state-owned enterprises after deducting dividend tax is still higher than the overall dividend rate of central state-owned enterprises on A-shares. So,Even considering the dividend tax factor, Hong Kong stocks can still attract capital from the South to buy them due to their high dividend characteristics. This is the third advantage.

Editor/jayden