Source: Finance Association

Once again, the Hang Seng Index has made great strides. The cumulative increase in the Hang Seng Index has exceeded 10% during the year, and the dividend theme has taken over the baton of the rise.

According to Wind data, the net worth of 12 Hong Kong stock themed ETFs reached a new high since their establishment on May 10, with Hong Kong stock dividend-themed products accounting for half. ETFs with different segments of the Hong Kong market, such as Hong Kong Stock Connect 50, state-owned enterprises, consumption, and healthcare, have also risen. The top 80 cross-border ETFs in net worth return this week are all Hong Kong stock themed products.

What is interesting is that with the strong performance of many Hong Kong stock themed ETFs, some Hong Kong stock themed ETFs are also showing premium prices. As with overseas market-themed ETFs that have received much attention before, the path of capital switching tracks has emerged.

Dividend tax rumors ignite enthusiasm for investing in topics such as dividends

In fact, the net worth of many Hong Kong stock dividends and financial-themed ETFs has hit new highs one after another. For example, the net value of the three products owned by Huaxia Fund, including the Hong Kong Stock Central Enterprise Dividend ETF, Hong Kong Stock Connect Financial ETF, and the Hong Kong Stock State-owned Enterprise ETF, hit a new high since its establishment on May 10. On the previous trading day, the net worth of these 3 products had reached a peak value since establishment, and then there was an increase of more than 6% on May 10.

This week, Guangfa Hong Kong Stock Non-Bank ETF led the cross-border ETF market with a net return of 10.7%; ICBC Credit Suisse Hong Kong Stock Dividend ETF, Huaxia Hang Seng Dividend ETF, and Huaxia Hong Kong Stock Connect Finance rose more than 8.5%.

The strong performance of topics such as Hong Kong stock dividends and non-banks is inseparable from the recent rumor that the Hong Kong Stock Connect dividend tax may be reduced. Although the rumor has yet to be officially confirmed. However, in March of this year, Chairman of the Hong Kong Securities Regulatory Commission, Lei Tianliang, proposed lowering the dividend tax level for individual investors in Hong Kong Stock Connect and lowering the entry standards for Hong Kong Stock Connect mainland investors.

Rumors continued to circulate, and market investment enthusiasm was further ignited. According to CICC's analysis, if the Hong Kong Stock Connect dividend tax relief is implemented, it is estimated that the direct tax relief brought about by this potential adjustment is about HK$10 billion each year. While the short-term direct relief from potential adjustments may be limited in scale, they may provide an emotional boost.

Looking at the medium to long term, they believe it will help boost the attractiveness of Hong Kong stocks as high-dividend assets, enhance the liquidity of Hong Kong stocks, and even help some companies to reduce AH premiums.

Hong Kong Stock Themed ETF Spillover Ratio Differentiation

A number of Hong Kong-themed ETFs also showed a rise in premium prices. According to Wind data, 42 cross-border ETFs had a premium of over 1% on May 10. Among them, the E-Fangda China Internet ETF closed up 0.65% in the secondary market, with a 1.99% premium. The Cathay Pacific Hong Kong state-owned enterprise ETF closed up 1.42%, with a premium of 1.71%.

Product premiums such as Huatai Berry Hong Kong Stock Finance ETF, Huatai Berry Hong Kong Stock Connect Dividend ETF, Huaan Hang Seng Technology ETF, and Huatai Berry China Securities Hong Kong Stock Connect 50 ETF also surged more than 1.2% on May 10. Over time, some of the above products continued to experience premium prices.

Similar to cross-border ETFs that invest in overseas markets such as Nikkei and NASDAQ, some fund managers may set lower fund share limits for some Hong Kong stock themed ETFs due to considerations of total QDII. For example, the maximum subscription limit for the E-Fangda China Securities Overseas Connect ETF on May 10 is only 5 million copies, and the maximum subscription limit for the Huatai Berry Hong Kong Stock Connect Dividend ETF is 10 million shares on the same day.

Thanks to the popularity of capital, it is no surprise that products with low subscription amounts have premiums. However, some Hong Kong stock themed ETFs, such as pharmaceuticals, consumer goods, and technology, were discounted at the same time. The one with the biggest discount on May 10 was the Hong Kong pharmaceutical-themed ETF, which closed up 0.51% and discounted by 2.11%.

Hong Kong equity-themed ETFs have also seen big differences in recent redemptions, and capital position adjustments are obvious. According to Wind data, as of May 10, there was a net redemption of 3,569 billion shares of cross-border ETFs this week.

Among them, Huatai Berry Hang Seng Technology ETF received the most net redemptions, reaching 1,199 million shares. The net redemption of the Huaxia Hang Seng Technology ETF exceeded 800 million shares, and the Guangfa Hong Kong Stock Innovative Drug ETF, Dacheng Hang Seng Technology ETF, and the Boshi Hang Seng Technology Index ETF were reduced by more than 200 million shares. The Fuguo Hong Kong Stock Connect Internet ETF, E-Fangda Hong Kong Securities ETF, ICBC Credit Suisse Hong Kong Stock Dividend ETF, and Huatai Berry Hong Kong Stock Connect Dividend ETF were net purchases.

How do you view future investment opportunities in the Hong Kong stock market?

It is easy to see that in the recent round of rapid rebound in Hong Kong stocks, the rebound in the Internet sector was even stronger, and the dividend sector showed weaker performance. According to Wind data, since April 22, the Hang Seng Internet Technology Index has risen by more than 22%, while the Hang Seng Red Chip Index has risen by more than 15%.

Did the strong performance of dividend-themed ETFs on Friday and the recent capital adjustments mean a shift in Hong Kong stock investment trends? CICC believes that the reason behind this round of Internet growth is not entirely affected by profit improvements. Investors value more high-quality assets that stabilize cash flow and shareholder returns. In a sense, it can be seen as a “new dividend concept.”

Looking further, they believe that before fiscal strength effectively boosts credit cycles and demand, and inflation, especially PPI, rises sharply, the strategic value of dividend factors is expected to show further. Also, keep in mind the differences in the meaning and logic of high dividends and high dividends. High dividends may be the result of low stock prices rather than actual dividend capacity, such as real estate and finance. Instead, high dividends value continuous and stable dividend capacity, so cash flow and balance sheet quality are also important considerations.

Zhang Junxiao, head of the Total Cycle Group of the Penghua Fund Research Department, is inclined to believe that subsequent transactions at the Hong Kong stock index level may become more difficult, but the structural opportunities from the bottom up are still worth grasping.

He suggested that bottom-up structural opportunities can focus on two directions. One is an internet platform with leading effects, strong cash capacity, and potential for dividends; the other is an industry direction that has experienced Davis's double kill in the past two years and is currently at a low inventory cycle and has room for upward profit and valuation, such as pharmaceuticals and semiconductors.

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