The Hang Stock Connect High Dividend Total Return Index is about to enter its strongest seasonal period (December to mid-January), historically offering high probabilities of absolute and excess returns. GF Securities suggests focusing on allocation opportunities in Hong Kong-listed high-dividend stocks as a potential year-end strategy.
From 2014 to the present, during December to mid-January, the index has outperformed the CSI 300 Total Return, CSI Dividend Total Return, and Hang Seng Index Total Return with an 82% win rate, while the absolute return win rate stands at 91%. Current trading volume accounts for only 6.1%, indicating relatively low crowding and a possible reallocation opportunity.
Key observations by GF Securities: 1. **Absolute Returns**: A 90.9% probability of gains, with median and average returns of 3.4% and 4.6%, respectively. The sole loss occurred during the 2016 market circuit breaker. 2. **Versus CSI 300 Total Return**: 81.8% probability of excess returns, with median and average excess returns of 5.6% and 2.1%. Underperformance was seen during the 2014-2015 leverage-driven bull market and the 2020-2021 liquidity-driven rally. 3. **Versus CSI Dividend Total Return**: 81.8% probability of excess returns, with median and average excess returns of 3.6% and 3.2%. Underperformance occurred during the 2014-2015 bull market. 4. **Versus Hang Seng Index Total Return**: 81.8% probability of excess returns, with median and average excess returns of 1.0% and 1.6%. Underperformance was driven by Tencent's unexpected surges in late 2020 and 2022.
**Reasons for Strong Seasonal Dividend Rally**: 1. **Year-End Portfolio Rebalancing**: Fund managers and relative-return-focused institutions may shift from high-valuation growth stocks to high-dividend, low-volatility Hong Kong stocks to lock in annual gains. 2. **Insurance Capital Inflows**: December-January marks peak premium collection periods, prompting insurers to allocate to high-dividend assets to match liability costs. 3. **Policy Catalysts**: Year-end policy announcements, such as dividend-boosting measures or growth stabilization policies, may trigger rallies.
**Other Seasonal Trends**: - **March to mid-April**: Potential gains due to earnings season and dividend surprises, though weaker than A-share dividends. - **June to early August & late September-October**: Higher downside risks, possibly linked to dividend payouts and profit-taking.
**Current Recommendation**: Allocating to Hang Stock Connect high-dividend stocks could be a viable year-end strategy, given historical outperformance and low crowding.
**Risks**: Geopolitical tensions and overseas inflation risks.
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