Policy Boosts Bank Sector; Why Focus on HK Stock Connect Finance Now?
01 Policy Mega-Package Incoming
After much anticipation, our A-share market has finally welcomed a policy mega-package.
On the morning of September 24th, the State Council Information Office held a press conference. Leaders from the central bank, the financial regulatory authority, and the securities regulatory commission introduced the financial support for high-quality economic development.
Although the reduction in reserve requirements and interest rates, as well as the decrease in mortgage interest rates and down payment ratios, are significant, they were already expected, so I won't elaborate on them here.
What is worth mentioning is that the central bank has created two new policy tools to support the development of the stock market.
One of the tools is the securities, funds, and insurance companies' swap facility, which supports eligible securities, funds, and insurance companies to use their own bonds, stock ETFs, and Shanghai-Shenzhen 300 components as collateral to exchange for highly liquid assets such as government bonds and central bank bills from the central bank. This policy will greatly enhance the capital acquisition and stock increase of the relevant institutions. The funds obtained by institutions through this tool can only be used to invest in the stock market. The initial swap facility operation scale is 500 billion yuan, and the scale can be expanded in the future depending on the situation.
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The second tool is the stock repurchase and increase in re-lending. The central bank will guide commercial banks to provide loans to listed companies and major shareholders for the repurchase and increase of listed company stocks. The People's Bank of China will issue re-lending to commercial banks, providing a funding support ratio of 1.75% of the service re-lending rate. When commercial banks provide loans to customers, the interest rate will be increased by 0.5 percentage points, which is 2.25%. The initial phase is 300 billion yuan, and if this work is done well, it can be increased later.
In short, the central bank has created two new tools to supply ammunition to the big A, and if the effect is good, it will continue to be added later. In addition, the central bank leaders responded to the market's hot expectation that the stabilization fund is under study, leaving enough suspense for the future market.
Overall, the intensity of the policy exceeds the previous market expectations. Because of this, since the end of September, A and H shares have ushered in a refreshing surge.
02 Banks, Still BanksOn October 10th, the People's Bank of China officially announced the creation of the "Securities, Fund, and Insurance Company Swap Facility (referred to as SFISF)" starting from today, to support qualified securities, fund, and insurance companies in exchanging high-grade liquid assets such as government bonds and central bank bills from the People's Bank of China by pledging bonds, stock ETFs, and Shanghai-Shenzhen 300 constituent stocks. The initial operation scale of this innovative policy tool reaches 500 billion yuan, and the operation scale can be further expanded depending on the situation.
In one sentence, the initial swap facility has been implemented.
From the market reaction, the boosting effect of SFISF is significant. Especially high-dividend assets such as those with "China" in their names, as they may be the preferred choice for institutions to carry out swap facilities. At the same time, as the market continues to rise, the market's demand for high-low switching is also increasing, which is expected to further catalyze the market for high-dividend assets.
So the question arises, in which industries are high-dividend assets mainly concentrated?
Currently, looking at the entire market, coal and banking are the most typical high-dividend industries.
Among the 31 first-level industries of Shenwan, coal, banking, petroleum and petrochemicals, textiles and apparel, and home appliances are the top 5 industries in terms of dividend yield, with dividend yields of 5.31%, 4.94%, 4.36%, 3.84%, and 3.31%, respectively.
Among them, due to the significant impact of energy prices on coal and petroleum and petrochemicals, the volatility of dividend yields will also be greater. In this regard, the banking sector will be more stable.
Going deeper, the banking industry can be divided into four sub-industries: state-owned large banks, joint-stock banks, city commercial banks, and rural commercial banks. The current dividend yields of the four industries are 4.82%, 5.24%, 4.66%, and 5.47%, respectively, far ahead of the 2.28% dividend yield level of the Wind All A.
Therefore, the hot banking market this year is expected to be further catalyzed by the new tool SFISF.
03 Hong Kong Stock Connect Finance may be a better solution.It's worth noting that the current valuation level of Hong Kong stocks is somewhat lower than that of A-shares. In layman's terms, for the same assets, Hong Kong stocks are offered at a discount on top of the A-share prices.
The dividend yield is the ratio of dividends per share to the share price. If the dividends are roughly the same and the share price is cheaper, the dividend yield will be higher. Therefore, the Hong Kong stock market is a more ideal market for dividend investment.
Currently, there is an index in the Hong Kong stock market with a dividend yield exceeding 6%, even surpassing the coal sector of A-shares. It is the CSI Mainland Hong Kong Stock Connect Financial Index.
This index is composed of mainland financial institutions listed in Hong Kong. In terms of industry distribution, it is approximately half state-owned large banks, one-third to one-fourth insurance, 10% joint-stock banks, and a small number of securities firms and non-bank financial institutions.
The top ten weighted stocks are Industrial and Commercial Bank of China, China Construction Bank, Ping An Insurance, China Galaxy Securities, China Merchants Bank, China Life Insurance, Agricultural Bank of China, Bank of Communications, CITIC Limited, and China Property & Casualty Insurance.
It is quite evident that this is an index with a high "silver content." In terms of dividend yield and valuation, this index can actually be referred to as Bank Plus.
Currently, the price-to-book ratio of the CSI Mainland Hong Kong Stock Connect Financial Index is 0.47, lower than the 0.64 of A-share banks; the dividend yield is 6.22%, higher than the 4.94% of A-share banks.
Therefore, if you are looking to invest in high-dividend bank assets, consider a fund that tracks this index.
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