Traders take cover by loading up on high dividend stocks as Chinese market makes worst start in two decades

The high dividend strategy is expected to do well in the first quarter, given the current market environment and sentiment, China Galaxy Securities analyst says

The CSI Dividend Index has risen 2.1 per cent in 2024, while the CSI 300 Index has fallen 4 per cent, extending its outperformance last year

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A large screen shows the latest stock exchange and economy data in Shanghai, in this file photo from January 2. Photo: EPA-EFE

Published: 3:00pm, 9 Jan 2024Updated: 4:34pm, 9 Jan 2024

Chinese investors have been taking shelter in high dividend stocks to ride out the market’s worst start to a year in more than two decades.

The CSI Dividend Index of the 100 companies on the Shanghai and Shenzhen exchanges that have a good track record of dividend payouts has risen 2.1 per cent in 2024. In contrast, the benchmark CSI 300 Index has fallen 4 per cent, marking its most muted start to a year since 2003. The dividend gauge closed last year with a gain of 0.9 per cent, trouncing the CSI 300 with its 11 per cent loss.

Chasing dividend-rich shares is seen as a conservative strategy that gains traction during weak market sentiment, as these stocks typically deliver low earnings growth rates. The strategy’s popularity among investors currently underscores the fragility of Chinese stocks, which have extended declines after an unprecedented third consecutive annual loss in 2023, as concerns about the property market and local government debt persist.

“The high dividend strategy is still expected to do well in the first quarter, given the current market environment and sentiment,” said Yang Chao, an analyst at China Galaxy Securities in Beijing.

“The property market is struggling to clear inventories, and defusing the risk from local government debt tops the government agenda in 2024. Besides, geopolitical risks are a factor that will potentially rattle the global financial markets.”

Official data due on Friday might show that both consumer and producer prices continued to be mired in deflationary territory in December amid declining domestic demand.

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