When it comes to yield, China’s publicly traded companies stand out compared to government bonds

Chinese stocks are now most appealing relative to government bonds on record even as equities remain generally subdued amid the coronavirus outbreak.

The difference between the yield on the nation’s 10-year sovereign bonds and the dividend yield on the biggest publicly traded companies narrowed to 0.27 percentage point late last month, the least since Bloomberg began to compile the data in 2005.

The previous record for the spread was 0.5 percentage point, a level that was touched three times in the past. Stocks surged subsequently on all three occasions.

While traders have been flocking to government bonds in the hunt for safe assets amid the coronavirus outbreak, driving yields down to record lows both in China and globally, the dividend yield, the ratio between dividend payouts and share prices, on the CSI 300 Index of the biggest mainland-traded stocks rose to its highest level in 14 months.

Shenwan Hongyuan Group, a Shanghai-based brokerage, remains cautious on China’s bonds for the second half, predicting the bull run will probably end in the second quarter. Citic Securities, the nation’s biggest publicly traded brokerage, and Essence Securities are bullish on stocks, saying economic expansion will pick up following a slew of measures by the government to bolster growth.

“The absolute level of the bond yield is pretty low currently and likely to see more volatility,” said Meng Xiangjuan, an analyst at Shenwan Hongyuan. “Investors should gradually pull out of bonds in the second quarter rather than buy aggressively.”