As we enter the fourth quarter, the previously booming technology sector and solid-state battery stocks have cooled off, giving way to dividend stocks that had "missed" the recent bull market, which have stabilized under the support of banking and insurance shares.
Multiple fund managers have noted that current market funds are seeking a safe haven, leading to renewed interest in the defensive attributes of dividend assets. Compared to A-shares, Hong Kong stocks, benefiting from higher dividend yields, could be more favored by insurance funds.
Recovery of Dividend Stocks Earlier, during the dynamic market spurred by innovative drugs and artificial intelligence, dividend stocks had somewhat low visibility. Investors felt they were missing out on the bull market given the continuous emergence of stocks and funds that were doubling in value.
Southern Fund interprets that before the tariff news became prevalent, the market showcased a clear growth-style dominance, with active performances from semiconductors and artificial intelligence attracting significant capital influx, creating a siphon effect on the more defensive dividend sector. In a risk-driven market scenario, such as the recent AI technology wave, capital tends to favor high-growth sectors, while the dividend strategy, due to its steady nature, often lags behind.
However, as we enter the fourth quarter, signs of a market shift are evident. As of October 17, the Shanghai and Shenzhen indices had fallen more than 1% and 6% respectively this month, while the CSI Dividend Index rose about 2.48% under the support of banking, insurance, and resource stocks.
Moreover, the Hang Seng Dividend Index, which includes component stocks like China Nonferrous Mining, New China Life Insurance, COSCO Shipping Energy, and several bank stocks, has also been rising and hovering around historical highs.
Public funds have pointed out that current market funds are seeking a safe haven, increasing attention on the defensive attributes of dividend assets. Cui Lei, a manager at Southern Fund, mentioned: "The adjustment space for growth stocks in the current market remains difficult to predict accurately. Even if they stabilize, it will require a long time to gather strength for recovery, and in the short term, there is still a lack of a clear main line. Furthermore, as the third-quarter report disclosure period approaches, pure thematic stocks lacking fundamental support will face significant tests."
In this context, the low-volatility dividend strategy demonstrates various allocation advantages: firstly, the attractiveness of dividend yields is rebounding; mainstream dividend stocks now have dividend yields back above 4%, significantly enhancing their long-term allocation value. Secondly, the banking sector has undergone sufficient adjustments; after a prior decline, bank stocks have rebounded, stabilizing after breaking below the yearly average, indicating a higher valuation safety margin. Lastly, the year-end shift in capital styles: some absolute-return funds are positioning for the 2026 market, gradually shifting towards undervalued, high-dividend value varieties, driving funds towards dividend assets.
Zheshang Fund also indicated that once the market enters a contraction-adjustment phase, high-leverage crowded trading directions may face adjustment risks of "multi-killing." In this context, the win rate and odds of chasing high-valuation main lines have significantly decreased, indicating a developing trend of capital migrating towards undervalued, high-cost-performance sectors.
The Cost-Performance Ratio of the Hang Seng Dividend Sector is More Pronounced In comparing A-shares and Hong Kong stocks, several public fund managers believe that Hong Kong stocks may offer better cost-performance. Data shows that the dividend yield of the Hang Seng Central State-Owned Enterprises Dividend Index reaches 6.02%, significantly outperforming the CSI Dividend Index. Additionally, its Price-to-Book (PB) ratio is 0.61 times, and its Price-to-Earnings (PE) ratio stands at 6.81, highlighting its advantages in dividend potential.
"We analyze representative sectors, and banks and highways are typical dividend stocks. Overall, bank dividends in A-shares are around 5%, while Hong Kong stocks approach 6%, which is quite attractive, and the fundamentals are stabilizing. The same applies to highways, where the current dividend yield is about 4%. The fundamentals have generally stabilized, especially as Hong Kong stock valuations are cheaper. Therefore, these two sectors indeed have absolute cost-performance, and long-term holders are already beginning to buy," revealed a research analyst from a North China public fund.
Additionally, Xu Zhiyan from Huashan Fund stated that insurance capital will become an important incremental force in the stock market, with Hong Kong dividends being a key direction for insurance investments. The compatibility of low volatility and high dividend characteristics in insurance funds with dividend sectors is notable, especially given that long-term bond yields are at historical lows, suggesting that insurance capital could increase its allocation towards dividend strategies, providing positive support from medium- to long-term funds. In addition, supportive policies also provide a solid backing for the dividend sector.
Huachuang Securities noted that H-shares have a pricing advantage, and the dividend income obtained by institutional investors who hold H-shares through the Hong Kong Stock Connect for a full 12 months can be exempt from corporate income tax. Furthermore, because of the high degree of internationalization of Hong Kong stocks, insurance capital can lower the overall volatility of the investment portfolio to some extent through dynamic balancing of relevant holdings.
Recently, within the segmented dividend market, the banking sector has performed exceptionally well. Xu Zhiyan believes that the banking industry, as a significant component of Hong Kong's dividends, can expect to see improvements in its fundamentals in the future.
"Under policy support, the banking sector as a key component of Hong Kong dividends is likely to witness fundamental improvements. This year, while maintaining a supportive monetary policy tone, regulators have also focused on maintaining a reasonable interest margin for banks. The stabilization of interest margin reductions is driving improvements in net interest income growth. Moreover, under a policy mix of local debt, stable real estate, and curbing competitive pressures, the extreme risks on the tail of bank loans have been significantly alleviated, which is beneficial for reducing the pressure on banks' non-performing assets. The valuation discount on asset quality is expected to recover," Xu Zhiyan stated.