"Buyback Refinance: Institutions Boost Allocation Amid Dividend Opportunities"
Publicly offered funds in a low-interest-rate environment have allocated dividend assets to the highest level in recent years. However, despite this, compared to the weight of the latter in A-shares, the allocation is still relatively low, and there is still room for future increases. The advancement of share repurchase and re-lending may further raise the enthusiasm of institutions to allocate dividend stocks.
At the end of September, People's Bank of China Governor Pan Gongsheng stated at a press conference held by the State Council Information Office that new monetary policy tools will be created to support the stable development of the stock market: the first is the creation of a swap convenience for securities, funds, and insurance companies, and the second is the creation of a special re-lending for share repurchase and increase (hereinafter referred to as repurchase re-lending), guiding banks to provide loans to listed companies and major shareholders to support share repurchases and increases.
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An imagination triggered by the above policy is whether high dividend or dividend assets will continue to be increased by investors, especially patient capital. A research report released by Guosheng Securities directly points out that these policies are a "means for the state to support the high dividend strategy of listed companies" and "will attract more investors pursuing stable returns."
Before this, publicly offered funds in a low-interest-rate environment have allocated dividend assets to the highest level in recent years. However, despite this, compared to the weight of the latter in A-shares, the allocation is still relatively low. Taking the China Securities Dividend Index as an example, at the end of the first half of the year, the market value of publicly held positions accounted for 9.91% of the A-share assets held by publicly offered funds, which is still 6.26 percentage points lower than the weight of the index in the A-share circulating market value.
In response to investors' favor, dividend assets have also given corresponding feedback. Data from East Money Choice shows that the return rate of the China Securities Dividend Index over the past three years (as of October 14) exceeded the Shanghai and Shenzhen 300 Index by 27 percentage points.
New policy for share repurchase and re-lending
The path of this share repurchase and re-lending: The central bank will issue re-lending to commercial banks, with a funding support ratio of 100%, and the re-lending interest rate is 1.75%. The loan interest rate issued by commercial banks to customers is around 2.25%, which can be increased by 0.5 percentage points.
In terms of quota, Pan Gongsheng stated: "The first phase of the quota is 300 billion yuan. If this tool is used well, as I have also discussed with Chairman Wu Qing, another 300 billion yuan can be added, and even a third 300 billion yuan can be implemented, which is possible. But we will look at the market situation later and need to make some assessments."
Pan Gongsheng emphasized that this tool is applicable to listed companies with different ownership structures such as state-owned enterprises, private enterprises, and mixed-ownership enterprises, "We do not distinguish between ownership structures. The People's Bank will work closely with the China Securities Regulatory Commission and the Financial Regulatory General Bureau, and also need the cooperation of market institutions to do this work well."
On the same day, a research report published by Guosheng Securities stated that the above policy is a "means for the state to support the high dividend strategy of listed companies."The research report cites an example of a listed company with a dividend yield of 4%. Assuming the stock price remains unchanged, borrowing 200 million yuan at a 2.25% interest rate to increase holdings, the dividend received would be 8 million yuan, while the interest on the loan would be 4.5 million yuan, resulting in a net income of approximately 3.5 million yuan. "This interest spread benefit can exist for a long time and has a clear advantage, which helps major shareholders of listed companies to proactively increase the frequency of share repurchases and dividend payout ratios, as the higher the dividend yield, the higher the interest spread benefit."
According to the "Guidance for Listed Companies No. 10 - Market Value Management (Draft for Comments)" and its "Drafting Explanation" released by the China Securities Regulatory Commission on September 24, regulators encourage listed companies to use dividends, share buybacks, and major shareholder increases to reward investors.
Data from East Money Choice shows that as of October 15, 706 listed companies have announced plans to implement interim dividends, of which 496 have already been distributed.
Increase allocation efforts
According to East Money Choice data, public funds have been increasing their allocation to dividend-paying assets in recent years.
Taking the China Dividend Index as an example, as of the end of the first half of the year, public funds held all 100 constituent stocks, with a total holding market value of 496.7 billion yuan, a 41.39% increase from the beginning of the year, exceeding the index increase (7.75%) by 33.64 percentage points. Compared with the same period last year, the holding market value increased by 61.11%, exceeding the index increase (5.57%) by 55.54 percentage points. In terms of shareholding ratio, public funds held 4.67% of the index's free-floating market value, an increase of 1.37 percentage points from the beginning of the year, and an increase of 2.25 percentage points year-on-year.
Taking the Central Enterprise Dividend Index as another example, as of the end of the first half of the year, public funds held all 50 constituent stocks, with a total holding market value of 353.1 billion yuan, a 51.81% increase from the beginning of the year, and a 53.23% increase compared to the same period last year. Compared with the index increase during the same period, it exceeded by 40.29 percentage points and 50.35 percentage points, respectively. During the same period, the public fund holding ratio for this index was 3.55%, an increase of 1.13 percentage points from the beginning of the year, and an increase of 1.59 percentage points year-on-year.
Nevertheless, the allocation of public funds to the constituent stocks of the above two indices is still at a relatively low level.
As of the end of the first half of the year, the total market value of A-shares held by public funds was 5.01 trillion yuan, of which the China Dividend Index accounted for 9.91%, an increase of 3.14 percentage points from the beginning of the year, and an increase of 4.37 percentage points year-on-year. However, compared with the index's proportion in the A-share free-floating market value (16.17%), it is still under-allocated by 6.26 percentage points.
During the same period, the Central Enterprise Dividend Index accounted for 7.05% of the A-share market value held by public funds, an increase of 2.57 percentage points from the beginning of the year, and an increase of 2.91 percentage points year-on-year. However, compared with the index's proportion in the A-share free-floating market value (15.11%), it is still under-allocated by 8.05 percentage points.In terms of industry allocation, among the 20 constituent industries covered by the CSI Dividend Index, the top five industries with the highest public fund holdings at the end of the first half of the year are banking, coal, public utilities, petroleum and petrochemicals, and real estate, with a total market value of 150.6 billion yuan, 80.4 billion yuan, 52.4 billion yuan, 29.1 billion yuan, and 24.7 billion yuan, respectively. These account for 30.33%, 16.19%, 10.56%, 5.86%, and 4.98% of the total market value held by public funds in the index.
Among them, the weights of the banking, public utilities, and petroleum and petrochemicals industries increased by 3.42%, 2.74%, and 0.72% respectively compared to the beginning of the year, while the weights of the coal and real estate industries decreased by 2.80% and 2.89% respectively. In other industries, the home appliance industry saw a significant increase in allocation, with its weight rising from 3.50% at the beginning of the year to 4.59%, an increase of 1.09 percentage points.
The Central Enterprise Dividend Index is slightly different. Among the 15 constituent stocks covered by this index, the top five industries with the highest public fund holdings at the end of the first half of the year are banking, public utilities, coal, petroleum and petrochemicals, and real estate. The weights of the public utilities, banking, coal, and petroleum and petrochemicals industries increased by 3.42%, 1.63%, 0.61%, and 0.47% respectively compared to the beginning of the year.
As for the reasons for increasing the allocation of dividend assets, Yang Jianhua, a fund manager at Great Wall Fund, said: "With the decline in domestic long-term Treasury bond yields and the expectation of increased dividend payout ratios, high dividend assets have attracted more attention. Fluctuations in economic growth have also prompted investors to pay more attention to stable performance assets."
Zhang Ziyan, a fund manager at Fuguo, believes that due to some challenges in consumption growth, inflation repair, and export expectations, "investors are very hesitant about the timing of the bottom-up recovery of corporate profit cycles, so the market has chosen high dividend and other defensive sectors as the main direction for incremental allocation."
In a low-interest-rate environment, especially against the backdrop of the central bank's proposal to create securities, fund, and insurance company swap facilities, as well as stock repurchase and increase in special re-lending policy tools, the dividend sector is considered likely to continue to receive increased allocation from long-term capital.
Institutional interest is strong.
In terms of investment returns, the dividend sector has lagged behind the overall market in the recent round of market movements since late September. However, looking at a longer period, the situation is exactly the opposite.
Taking the CSI Dividend Index and the Central Enterprise Dividend Index as examples, according to the data from East Money Choice, as of October 14, their increases since September 24 were 14.83% and 17.57%, respectively, while the Shanghai Composite Index, Shenzhen Component Index, and CSI 300 Index increased by 19.48%, 27.76%, and 23.30%, respectively.
The above two dividend indices have increased by 7.24% and 15.25% over the past three years, while the above three broad-based indices have increased by -7.79%, -28.04%, and -19.81% during the same period. At the same time, the maximum drawdown of the two dividend indices was -18.42% and -19.85%, while the three broad-based indices were -26.59%, -47.64%, and -37.86%, respectively.The data mentioned above indicates that, in the long term, the dividend sector has shown relatively higher certainty. Precisely for this reason, institutional investors are becoming increasingly interested in this sector.
Taking the holder structure of dividend-themed ETFs as an example, as of the end of the first half of the year, there were 12 types of such ETFs (tracking 12 dividend indices), with a total share size of 42.1 billion shares, an increase of 69.53% compared to the beginning of the year. During the same period, the shares held by institutional investors increased from 14.1 billion shares to 24.8 billion shares, an increase of 74.96%. The proportion of the share size of dividend-themed ETFs held by institutional investors also increased from 57.03% at the beginning of the year to 58.86%, an increase of 1.83 percentage points. Compared with the same period in 2021, it has increased by 37.84 percentage points.
However, the degree of preference of institutional investors for the 12 dividend-themed ETFs varies.
Looking at the scale of positions, as of the end of the first half of the year, the institutional investors' positions with the highest market value were the CSI Dividend ETF, totaling 10.4 billion yuan, accounting for 27.73% of its total market value of dividend ETFs (37.5 billion yuan). In terms of the proportion of shares held, the 300 Dividend Low Volatility ETF ranked first, with institutional investors holding 98.00% of the total shares of this type of ETF during the same period.
East Money Choice data also shows that since late September, the share size of dividend-themed ETFs has decreased in this round of market movements. The reason may be that some investors have chosen to take profits or reallocate to other sectors.
As of October 14th, the total share size of the 12 dividend ETFs was 40.8 billion shares, a decrease of 4.2 billion shares compared to September 23rd, a decrease of 9.26%. During the same period, the share size of the entire market's stock ETFs increased by 176.4 billion shares, an increase of 10.54%. The ETF varieties with larger increases were mainly the STAR 50 ETF, CSI A500 ETF, and SSE 300 ETF, with share sizes increasing by 19.23 billion shares, 2.57 billion shares, and 1.8 billion shares, respectively.