＜Research＞CICC: Re-entry Into High Div. Theme Should Wait Until Sufficient Pullback; Prefers Semiconductors/ Autos/ Medias/ Softwares/ Biotechs in Short Term

　　CICC highlighted in a report HSI saw a sharp retracement last week, especially last Friday (19th), sending it once again below 18,000. Correspondingly, investor sentiment has also become more subdued, with the short-selling revenue ratio climbing rapidly from the previous low of 12.9% to a relatively high level of 18.5%. On the capital front, overseas capital continued to be weak, with weekly outflows of northbound capital again approaching RMB20 billion, and EPFR data suggesting that outflows of foreign capital also accelerated.

　　While the indexes weakened, some of the high dividend sectors such as energy and raw materials, which have led the rally since the beginning of the year, also retreated sharply, which aroused investors' concern. CICC believed that the recent pullback in stocks seemingly belonged to high dividend sectors may not always be attributed to the dividend factors themselves, but more to sectoral factors. For example, the volatility of the energy and raw materials sectors may be affected by the “Trump Trade”. However, as high dividend stocks in A-shares and Hong Kong stocks overlap more with the two sectors, it would be an unbalanced analysis to attribute all the fluctuations to the dividend factor.

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　　CICC considered it normal for high dividend stocks to pull back a bit due to target rotation after experiencing a large overdraft, and it does not change the long-term investment logic. Considering that the current 10-year Chinese bond rate is around 2.3%, plus certain risk compensation, CICC suggests caution when A-shares dividend yield falls below 4% and when that of Hong Kong stocks dip below 5%, with market re-entry later after a sufficient pullback.

　　Short-term volatility would not change CICC's long-term investment logic, as dictated by the macro environment. Against the backdrop of a credit cycle that has not opened up significantly and a downward trend in long-term growth expectations, dividend factor stocks that provide a stable return to hedge against a downward trend in the long-term rate of return will still be of investment value, unless there is a major fiscal push. However, the recent volatility has once again demonstrated, as CICC has been suggesting, that when screening for high dividend stocks, it is necessary to focus on profitability and dividend capacity, rather than simply the dividend yield. Thus, targets with stable profitability and stronger dividend capacity offer a better opportunity to position themselves during the recent volatility.

　　In conclusion, under the baseline scenario, CICC believed that it is still unrealistic to expect strong stimulus, and that internal and external constraints make it difficult to implement all stimulation policies in one go. Under such circumstances, the market is more likely to maintain an oscillating market rather than an exponential growth market.

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　　At the allocation level, under the short-term overseas interest rate cut deal, growth sectors benefiting from expected yield factors may have higher flexibility, such as semiconductors, automobiles (including NEVs), media and entertainment, software, and biotechnology. On the contrary, the high dividend theme may lose out in the short term, but this should not change the overall allocation pattern.

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