China’s investors flock to dividend stocks as returns double those of state bonds

Chinese investors have been flocking to dividend stocks, seeking refuge from market turbulence caused by sell-offs in technology firms and China's K-shaped economic growth. Two key indices of mainland-listed companies with the highest dividend yield ratios outperformed the benchmark during October, as fears of tighter US monetary policy and China's subdued domestic demand dampened investor appetite for risk.

The Shanghai Stock Exchange Dividend Index, composed of 50 selected stocks, rose 2% that month, while the CSI Dividend Index, tracking a broader pool of 100 such stocks, gained 1.6%. Conversely, the CSI 300 Index declined 4.3%, and the chip-focused Star Market 50 index plummeted 11%. The dividend indexes offer at least a 4% yield, more than double the 1.65% yield on China's 10-year government bond, signaling a significant shift in investor sentiment.

Chen Gang, an analyst at Soochow Securities, noted that value could outperform growth in the next one or two years as liquidity and industry trends reach turning points, and the AI hardware's resilience may wane. Chen preferred resource companies to consumer names due to rising energy and commodity prices and a weakened labor market.

The SSE Dividend Index was dominated by energy and financial industries, while the CSI dividend gauge had financial stocks as its biggest industry component. The 50 dividend stocks on the Shanghai bourse had an average dividend yield of 4%, and those on the CSI gauge returned an average yield of 4.2%. As China's economic growth remains patchy, dividend stocks may continue to outperform, given fewer broad opportunities in the stock market.