During every round of market volatility, dividend and low-volatility assets always come to mind.
The Hang Seng Connect Dividend ETF (Guangfa), Hang Seng Dividend Low-Volatility ETF, Hang Seng Connect Central Enterprise Dividend ETF (Southern), Hang Seng Central Enterprise Dividend 50 ETF, Dividend Hong Kong Stock ETF, Hang Seng Connect Dividend ETF (Fullgoal), and Hang Seng Dividend ETF all rose by more than 1%.
Recently, a new round of trade negotiations between China and the U.S. has impacted market expectations and sentiment. The technology sector, which has been the main driver of this rally, experienced a pullback, with earlier significant gains potentially requiring short-term digestion. Market risk appetite has declined somewhat, with styles rotating relatively towards value and dividend sectors.
From the recent movements of southbound funds, high-dividend sectors have become a favored asset class. Over the past quarter, southbound funds have cumulatively net purchased HKD 78.381 billion worth of Hong Kong-listed financial stocks, second only to non-essential consumption among all Hang Seng primary industries. Other traditional high-dividend sectors such as energy and utilities have also seen varying degrees of net inflows.
In terms of calendar effects, funds in the fourth quarter do tend to favor low-valuation cyclical sectors.
Statistical data over the past 20 years shows that cyclical industries such as white goods and food processing have risen more than 65% of the time in the fourth quarter.
The reasons are as follows: First, as the year-end approaches, some funds tend to take profits and gradually shift to a defensive posture to safeguard their annual gains; second, ahead of important meetings, some funds may anticipate macroeconomic policies and seek opportunities in left-sided bets on cyclical sectors.
CITIC Securities believes that the fourth quarter of 2025 could become one of the key moments for bottom-positioning in dividend stocks and achieving excess returns. This is based on: 1) Pessimistic expectations regarding fundamentals may already be fully priced in, with valuations bottoming out; 2) Increased demand for stable allocation from incremental funds; 3) Attractive dividend yields of high-quality leading stocks returning to appealing levels. Since 2025, the 10-year government bond yield has remained at a low range of 1.6%-1.9%. For instance, typical leading A/H shares in the highway sector have dividend yields reaching 5%/6.5% (2025E).
Huatai-PineBridge Fund argues that following the minor adjustment in Hong Kong’s dividend assets since July, the dividend yield of the Hang Seng Hong Kong Connect High Dividend Low Volatility Index has been on an upward trend for three consecutive months (from July 14, 2025, to October 13, 2025), widening the gap with the 10-year government bond yield. As of October 13, 2025, the yield reached 4.31%, higher than 61.82% of the time since the index was launched (May 8, 2017). This may indicate that dividend yields have gradually entered a phase with relatively prominent allocation value and could become an important lever for capital to increase equity asset allocations in pursuit of enhanced returns amid the new normal of low interest rates.
