Changes in high dividend returns after the Hong Kong stock market correction

After outperforming most Chinese assets in the first half of the year, high-yield stocks are experiencing a phased pullback. Taking CNOOC in H shares as an example, it has fallen by nearly 20% from its peak. This round of pullback is the largest short-term pullback for high-yield stocks from last year to now. Meanwhile, after the interest rate cut, the 10-year government bond yield dropped from 2.3% in July to the 2% level. The speed of the decline in long-term bond yields is very fast. In the past two days, the central bank has also indicated its intention to guide long-term bond yields. The market speculates that shorting government bonds is the next move. After the long-term bond yield dropped to 2%, it was quickly pulled back to the 2.15% level. It is worth noting that in the past year, whenever interest rates decline rapidly, it corresponds to the rise of high-yield stocks. However, recently this correlation seems to be weakening. As mentioned before, as long as the long-term trend of declining interest rates remains unchanged, high-yield stocks with dividend yields above 5% still have opportunities for allocation with sufficient safety margins. In other words, the core logic of pricing high-yield stocks has not changed. The recent significant pullback is more likely due to the impact of overcrowded trading in the market. For example, from December last year to the recent high, the stock price of CNOOC has nearly doubled. Some medium to long-term funds are attracted by the high dividend yield, while others are attracted by the valuation premium because CNOOC is indeed undervalued and offers a strong dividend return. However, after the stock price has accumulated significant gains, it is inevitable to encounter a round of pullback, similar to what happened with NVIDIA recently. The current decline is not due to fundamental issues with the company, but rather because market funds are overly concentrated in one stock. When the pullback occurs, funds that have accumulated substantial unrealized gains will start to exit. Therefore, in this round of high-yield stock pullback, the four major banks in the Hong Kong stock market have not experienced such a large pullback, as there is relatively less funds speculating on valuation, with more insurance institutions allocating funds. For example, Ping An has continued to allocate H shares of China Merchants Bank recently. Similarly, China Petroleum, which is also a crowded high-yield stock target, has experienced a 20% pullback recently, while Sinopec has experienced a 25% pullback, which is even larger. On the other hand, Sinopec, which is not as crowded, only experienced a 5% pullback, indicating that the more it rises, the larger the pullback. Let's take a look at the dividend yield situation of the main high-yield stocks after this round of pullback. Currently, the dividend yields of CNOOC, PetroChina, and Sinopec have all returned to the 6-7% level, while Shenhua's dividend yield is 7.8%. Bank stocks generally have a dividend yield of around 7%, but there have been some changes in the three major telecom operators. Yesterday, China Mobile disclosed its second-quarter report, with revenue of 546.7 billion yuan in the first half of the year, a year-on-year increase of 3%, and a profit of 80.25 billion yuan, a year-on-year increase of 5.2%. Revenue has entered a small growth range, and depreciation may be one of the reasons for profit growth In the first half of the year, China Mobile's net cash flow was -9.486 billion yuan, operating cash flow was 131.3 billion yuan, investment cash flow was -85.482 billion yuan, and financing cash flow was -55.514 billion yuan. According to the management at the performance meeting, the slowdown in cash flow is due to an increase in accounts receivable and a corresponding increase in bad debt provisions. However, the good news is that China Mobile's dividend distribution is strong, with a dividend of HKD 2.6 per share for 24H1, a 7% year-on-year increase. It is expected that the dividend payout ratio for the full year will increase from last year's 71% to around 75%, with the current dividend yield at 6.7%. Although China Mobile's performance is not as good, after increasing the dividend payout ratio, the stock only fell by 1.3% today, while Telecom and Unicom fell by 4%. It is worth noting that China Mobile revealed pessimistic industry collection information, which has made the market concerned about the situation of Telecom and Unicom. Because in terms of cost control, China Mobile is doing better. If China Mobile's growth slows down, coupled with an increase in accounts receivable and bad debts, the situations of the other two companies may also be less favorable. Assuming that Telecom and Unicom also slow down in growth, their dividend yields are not as high as China Mobile's. Therefore, after China Mobile released its performance, it inadvertently led to a decline in Telecom and Unicom. After this round of high-yield stock corrections, there may also be a wave of consolidation. As for insurers, who are the main incremental funds for high-yield stocks, they may concentrate more on their allocations in the future. For example, they may choose the four major banks that are relatively less crowded in trading, as well as undervalued power stocks. In terms of dividend yield, currently in the Hong Kong stock market, Bank of China has a dividend yield of 7.7%, Construction Bank 8%, Agricultural Bank 7.3%, Industrial and Commercial Bank 7.6%, and China Merchants Bank 6.6%. Compared to the three major oil companies and the three major telecom operators, the current dividend yield of bank stocks is indeed higher, and considering the macroeconomic impact, bank stocks are indeed more stable. For example, Ping An recently increased its holdings in Industrial and Commercial Bank of China. Apart from bank stocks, insurers have also increased their holdings in power stocks recently. According to statistics, there have been 10 cases of insurers making strategic investments this year, with 4 of them involving Hong Kong-listed power stocks. For instance, Rui Zhong Life Insurance increased its holdings in China Longyuan Power from 5.85% to 6%, and Taiping Life Insurance made strategic investments in China Power International Power and China Huaneng International Power However, the allocation logic of insurance funds is definitely different from that of most investors, as the dividend yields of these 3 companies are not high, only around 3-4%, because insurance funds value safety and stability more. Looking at the net inflow of Southbound funds in the past month, Tencent ranks first, while the rest are mostly high-yield stocks, with banks accounting for the majority, and more incremental funds have flowed into banks recently. ConclusionAfter this round of high-yield stock correction, it is worth observing how insurance funds will allocate next. The three major oil companies and telecom operators, which are more crowded in the market, although the logic of long-term interest rate decline remains unchanged, with a 6-7% dividend safety cushion, it is also necessary to look at the company's cash flow changes each quarter, after all, the macro environment is still relatively weak