UBS Equities-China Equity Strategy _Whos buying the dividend stocks_ Me...-109966700

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abc

China Equity Strategy
Who's buying the dividend stocks?

The high dividend yield strategy has greatly outperformed the broader market YTD.
From mid-July to early August, dividend stocks experienced some correction, as
momentum investors exited after receiving annual dividends. However, the strategy is
back in focus as market sentiment is once again subdued, evidenced by ADT of
Rmb560.6bn for the past week (vs Rmb942.7bn in 2023 and Rmb862.7bn in H124,
Figure 3). Given property activities are yet to fully stabilise and the modest consumption
recovery, we think the strategy could regain traction among investors in the low-yield
environment. Also, the strategy significantly overlaps with large-cap, defensive and SOE
factors. As the Nine-point Guideline stressed the “people’s nature of capital market”
and regulators/listcos have rolled out measures to boost dividend yields, we think
improving A-share investors' returns is a long-term theme (Figure 1).
!
The A-share market style shift usually hinges on changes in marginal net inflows or
outflows. We note active mutual funds’ total AUM fell by Rmb252.7bn in Q124 and
Rmb133.1bn in Q224 (Figure 5), so growth stocks where MFs have a significant weight
saw significant net outflows. Nevertheless, passive funds experienced significant AUM
expansion, especially the index fund products tracking large-cap blue chips. The CSI 300
Index ETF has received net inflows of Rmb450bn YTD (Figure 6). This has indirectly
pushed up the valuations of high-dividend yield value sectors with high weights in
indexes. In addition, insurers are buying dividend stocks. We estimate insurers’ money
flow into the stock market in H124 was Rmb454.8bn (Figure 8). Facing ‘negative spread’
and reinvestment risks, insurers prefer high-dividend yield stocks. In fact, yields on bonds
with a high-yield track record – such as AA-rated 10-year corporate bonds and AA-rated
10-year local government financing vehicle (LGFV) bonds – have slid to c2.55% recently.
"#
In Q224, MFs raised their positions in high-dividend yield stocks (yields no less than 3%)
and value sectors as a % of total positions by 2.7ppt and 4.2ppt, respectively. In fact, the
defensive factor significantly overlaps with the value factor and the dividend strategy.
However, we note such strategies are not yet crowded. The position mix of MFs in high-
dividend yield stocks (Figure 11) and value sectors (Figure 12) was still 6-8ppt and 47ppt
below their historical highs, respectively. By sector, while the weight of coal and banks in
MF's positions increased over the past few quarters, they remain underweighted. Banks,
whose stock prices have recently risen, remain the most underweighted sector (Figure
14). We think the dividend strategy should remain as part of the core holdings in 2024
(see H224 A-share outlook), and this theme could deliver synergies with high-quality
SOE valuations re-rating.
$%%"&'((
EPS
growth
EPS
growth
PE PB
2024E 2025E 2024E 2024E
600938.SS CNOOC - A Buy 187,551 28.12 45.00 60% 202 27% -1% 8.5 1.6 5.3
600028.SS Sinopec - A Buy 113,857 6.67 9.00 35% 120 22% 12% 11.4 1.0 6.2
600900.SS Yangtze Power Buy 102,068 29.75 34.00 14% 312 27% 14% 21.0 3.4 3.3
601601.SS CPIC - A Buy 37,757 27.99 40.80 46% 87 38% 10% 10.9 1.0 3.8
600660.SS Fuyao Glass - A Buy 16,800 45.91 63.00 37% 80 23% 15% 17.3 3.4 3.5
600346.SS Hengli Buy 13,216 13.39 21.80 63% 27 24% 17% 11.0 1.5 5.1
600803.SS ENN Natural Gas Buy 7,816 17.99 25.30 41% 20 -17% 8% 9.5 2.1 5.7
600066.SS Zhengzhou Yutong Bus Buy 6,730 21.21 30.00 41% 77 88% 29% 14.1 3.4 7.1
Dividend
yield
2024E
Reuters
code
Name
Rating
Mkt cap
(USD mn)
Last price
(Rmb)
Price
Target
(Rmb)
Upside
Avg. daily
t/o (USD
mn)
Source: Wind, UBS-S estimates. Note: Share prices as of 21 August 2024.
This report has been prepared by UBS Securities Co. Limited. This is a translation of a Chinese research note published by UBS Securities
Co Ltd on the same date. )*(+ ,+-.-,+-$) )/ 0&-/ /-(,$(&(# 123456127 1289:;<=192 92 =>?
05<2=1=<=1@??A?<:3>?@1?BC5D41A>?6DE&'(#D?71292C<7?FG UBS does and seeks to do business with companies
covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
H(
China
I
Strategist
S1460517080001
lei.meng@ubs.com
+86-21-3866 8939
*(
Associate
S1460122070004
yu.sheng@ubs.com
+86-21-3866 4873
J
Analyst
S1460511010012
bin.xu@ubs.com
+86-21-3866 8872
,H( 22 August 2024 abc2
China Equity Strategy UBS-S Research
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0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
All A-share dividend (RMB 100mn) All A-share dividend yield (RHS, %)
RMB 100mn
Source: Wind, UBS-S. Note: Data as of 20 August 2024.
.L*"NK,'

Source: Wind, UBS-S. Note: Data as of 20 August 2024.
. OL +       PQR  

0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0
5,000
10,000
15,000
20,000
25,000
All A-share trading volume (RMB 100mn) All A-share turnover (RHS, %)
RMB 100mn %
Source: Wind, UBS-S. Note: Data as of 20 August 2024.
%
%%
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M
%KGS#"
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KGTG
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K,'#

G
+
#
KGOFT.
TKO
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%""
USGSG
,H( 22 August 2024 abc3
In our note Mutual fund purchases and redemptions: Reasons, flow and outlook, we
analysed that mutual funds' (MF) returns tend to be a leading indicator of their fund-
raising performance. We divide MFs into active funds (including flexible, equity-oriented
hybrid and common stock funds) and passive funds (including index funds, except ETF
feeder and enhanced index funds). We find the two categories' performances have
diverged this year.
Active funds have been under redemption pressure due to the sluggish stock market,
which has increased the market pullback, creating a negative feedback loop. Such funds
have shrunk sharply this year in terms of units and AUM. Specifically, there were
decreases of 136.7bn/56.8bn units in Q124/Q224, with the Q124 decrease the largest
quarterly one in the past decade, except for Q315.
Measured by AUM, active funds had decreases of Rmb252.7/133.1bn in Q124/Q224.
While it was caused by decreasing units, to some extent, the AUM contraction in Q124-
Q224 was below the historical high. In our view, this relatively manageable contraction
reflected a limited drop in stocks, overweighted by active funds YTD, as there is a strong
correlationship between MFs' AUM and share price movement.
.LV
-75%
-50%
-25%
0%
25%
50%
75%
100%
-750
-500
-250
0
250
500
750
1000
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
Q117
Q217
Q317
Q417
Q118
Q218
Q318
Q418
Q119
Q219
Q319
Q419
Q120
Q220
Q320
Q420
Q121
Q221
Q321
Q421
Q122
Q222
Q322
Q422
Q123
Q223
Q323
Q423
Q124
Q224
Change in # of fund units (bn, LHS) The return of equity funds index in the past 12 months (RHS)
The return of hybrid funds index in the past 12 months (RHS)
bn units
Source: Wind, UBS-S estimates. Note: Data as of June 2024.
.ULV&I
-125%
-100%
-75%
-50%
-25%
0%
25%
50%
75%
100%
-1500
-1200
-900
-600
-300
0
300
600
900
1200
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
Q117
Q217
Q317
Q417
Q118
Q218
Q318
Q418
Q119
Q219
Q319
Q419
Q120
Q220
Q320
Q420
Q121
Q221
Q321
Q421
Q122
Q222
Q322
Q422
Q123
Q223
Q323
Q423
Q124
Q224
Change in # of fund AUM (RMB bn, LHS) The return of equity funds index in the past 12 months (RHS)
The return of hybrid funds index in the past 12 months (RHS)
Rmb bn
Source: Wind, UBS-S estimates. Note: Data as of June 2024.
Passive funds have clearly outperformed active ones amid a volatile market for the past
two years. In H124, passive funds had an increase of 207.7bn units and AUM expansion
of Rmb322.2bn. Particularly in Q124, their AUM rose a substantial Rmb311.3bn, the
largest quarterly gain in their history. Importantly, the substantial passive fund AUM
expansion mainly reflected investor pursuit of broad-based ETFs, especially those
tracking large-cap blue chips. YTD, the CSI 300 Index ETF has received net inflows of
Rmb450bn.
摘要：

abcChinaEquityStrategyWho'sbuyingthedividendstocks?ThehighdividendyieldstrategyhasgreatlyoutperformedthebroadermarketYTD.Frommid-JulytoearlyAugust,dividendstocksexperiencedsomecorrection,asmomentuminv...

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