Zhongtai Strategy: How to View the Current Allocation Value of High Dividend Yield Sectors?

Executive Summary

1. How to view the current high-dividend sector’s allocation value?

This week, the A-share market generally showed a pattern of oscillation and decline, with shrinking trading volume but marginal improvement in profitability effects. In terms of index performance, most broad-based indices declined weekly. Among them, the Shanghai Composite Index fell a total of 1.27%, the Shenzhen Component Index dropped 2.11%, and the ChiNext Index declined further to 3.28%. Small- and mid-cap and growth styles performed relatively weakly. From the trading activity perspective, market liquidity continued to decline. The average daily trading volume of the Wind All A Index this week was about 2.41 trillion yuan, a significant decrease from last week, with total weekly trading volume down approximately 21.43% year-over-year, indicating that risk appetite before the holiday has contracted, and the willingness of incremental funds to enter has decreased, with the market mainly driven by existing holdings. Regarding profitability effects, the internal market structure has improved but remains neutral. The proportion of stocks rising daily this week was about 48.37%, a noticeable rebound from last week, suggesting that amid index oscillation and downward movement, the repair strength at the individual stock level has increased, but a broad rally has not yet formed, and structural opportunities remain prominent.

The current yield of the high-dividend sector is more attractive than long-term bonds, with valuations still at historically low levels, showing a “sideways resistance and vertical recovery” trend. From an industry perspective, the sectors with the highest dividend yields in the current A-share market are coal (5.28%), banks (4.62%), household appliances (3.79%), food and beverages (3.42%), petroleum and petrochemicals (3.35%), and transportation (2.8%), all higher than the 30-year Chinese government bond yield (2.248%). In a low-interest-rate environment, these sectors still have a relative advantage for allocation funds. Recent market performance shows that high-dividend sectors demonstrate strong defensive properties. On one hand, against the backdrop of significant market volatility in early February, technology and high-elasticity cyclical sectors experienced larger declines; for example, non-ferrous metals fell by 8.51%, and communication and electronics sectors declined over 5%. In contrast, high-dividend and stable sectors experienced relatively limited declines, with weekly gains over 1% in food and beverages, transportation, banks, and household appliances, providing some stability to the index. On the other hand, from a valuation repair perspective, although marginal warming has occurred since the beginning of the year, high-dividend sectors still operate within historically low valuation ranges. The price-to-book ratios of banks, household appliances, food and beverages, and transportation are generally below the 10-year 30th percentile, mainly reflecting a recovery from previous oversold conditions rather than a trend driven by sentiment or capital chasing, leaving valuation safety margins relatively ample.

The core reason why the high-dividend sector currently has allocation value is the combined support from marginal improvement in international liquidity, a strengthening RMB exchange rate, and domestic policy expectations. First, the international liquidity environment continues to improve, favoring high-dividend sectors. This week, U.S. President Trump repeatedly signaled the possibility of a Fed rate cut, and on February 5, the U.S. Department of Labor reported an increase of 22,000 in initial unemployment claims, indicating further signs of labor market weakening. As a result, expectations for a rate cut by the Fed in June have risen sharply, with markets generally expecting two more rate cuts within the year. In this context, the dollar index continued to decline, and long-term U.S. Treasury yields faced limited upward momentum, which is conducive to raising risk premiums for global equity assets. Second, the marginal strengthening of the RMB exchange rate is beneficial for improving capital structure. As the expectation of a weaker dollar intensifies, RMB exchange rate volatility pressure has temporarily eased, and foreign capital’s allocation logic for A-shares is gradually shifting from “trading participation” to “medium- and long-term allocation.” During this process, the attractiveness of technology and some cyclical sectors with high valuations and volatility has decreased, while sectors with higher safety margins, stable cash flows, and strong dividend certainty, such as high-dividend sectors, are more likely to become preferred choices for foreign and allocative funds. Third, the domestic policy environment provides medium-term support for high-dividend sectors. From a policy orientation, the focus on boosting domestic demand and stabilizing economic expectations by 2026 is relatively clear, with fiscal and structural policies still having room for further efforts. Meanwhile, under the policy guidance of “preventing risks, strengthening regulation, and promoting high-quality development,” regulators tend to guide market funds from high-volatility, crowded sectors toward low-valuation, steady-return assets. In this context, high-dividend sectors feature relatively manageable downside risks and gradually accumulating upside potential, further highlighting their medium-term allocation value.

Outlook for the future: Short-term structure remains technology-driven, while high-dividend sectors may become one of the main themes in the medium term. In the short term, the market will continue to maintain a pattern of structural activity and index oscillation. Under event catalysts and risk appetite support, the technology sector still has a basis for phased activity, especially in an environment before the Spring Festival where funds tend to be more trading-oriented and holding periods shorter. Segments such as AI applications, robotics, and semiconductor equipment still have room for repeated performance. Meanwhile, as some high-elasticity cyclical sectors experience phased capital outflows, internal market rebalancing accelerates, and high-dividend sectors are likely to see a marginal improvement window in relative returns. In the medium term, the logic for allocating high-dividend sectors will become clearer. After the Spring Festival, with the upcoming Two Sessions, expectations for stabilizing growth, promoting consumption, and advancing capital market reforms are gradually realized, and market styles are expected to shift from “high-elasticity trading” to “certainty-based allocation.” During this process, sectors with low valuations, stable profits, and high dividend certainty may experience a sustained and stronger repair rally rather than a short-term pulse rebound.

2. Investment Recommendations

Short-term: seize opportunities in technology sectors with low crowding, and gradually shift to high-dividend, low-valuation allocations in the medium term. Operationally, a phased response strategy is recommended. Before the Spring Festival, the market is still dominated by trading funds; strategies can continue to participate in technology sectors with a trend basis, focusing on segments with relatively low crowding, strong net capital inflows, no significant prior major upward waves, and having completed a correction cycle—such as AI applications, robotics, and semiconductor equipment—as phased allocation targets. After the Spring Festival and the Two Sessions, gradually increase the proportion of high-dividend, low-valuation sectors in the portfolio, focusing on banks, food and beverages, transportation, and other sectors with stable cash flows and dividend capabilities to hedge portfolio volatility and enhance overall return certainty. At the same time, maintain caution with sectors highly related to consumption but with limited profit elasticity and unclear policy benefit paths, to avoid unnecessary drawdowns during style shifts.

Risk Warning: Unexpected tightening of global liquidity, market complexity exceeding expectations, and the pace of policy changes being more complicated than anticipated.

Main Text of the Report

1.

How to view the current high-dividend sector’s allocation value?

This week, the A-share market generally showed a pattern of oscillation and decline, with shrinking trading volume but marginal improvement in profitability effects. Due to significant declines at the beginning of the week, indices faced pressure, then entered a phase of repeated oscillation. In terms of index performance, most broad-based indices declined weekly. Among them, the Shanghai Composite Index fell 1.27%, the Shenzhen Component Index dropped 2.11%, and the ChiNext Index declined further to 3.28%. Compared to this, style-wise, there is some defensive characteristic, with large-cap value outperforming. The SSE 50 declined only 0.93%, and the Wind All A Index fell 1.49%, significantly less than the ChiNext and small-cap growth indices, reflecting that funds in a volatile environment tend to favor low-volatility allocations. From trading activity, market liquidity continued to decline. The average daily trading volume of the Wind All A Index this week was about 2.41 trillion yuan, a notable decrease from last week, with total weekly trading volume down approximately 21.43% year-over-year, indicating that risk appetite before the holiday has contracted, and the willingness of incremental funds to enter has decreased, with the market mainly driven by existing holdings. Regarding profitability effects, the internal market structure has improved but remains neutral. The proportion of stocks rising daily this week was about 48.37%, a clear rebound from last week, indicating that despite index oscillation and downward movement, the repair strength at the individual stock level has increased, but a broad rally has not yet formed, and structural opportunities remain prominent.

The current yield of the high-dividend sector is more attractive than long-term bonds, with valuations still at historically low levels, showing a “sideways resistance and vertical recovery” trend. From an industry perspective, the sectors with the highest dividend yields in the current A-share market are coal (5.28%), banks (4.62%), household appliances (3.79%), food and beverages (3.42%), petroleum and petrochemicals (3.35%), and transportation (2.8%), all higher than the 30-year Chinese government bond yield (2.248%). In a low-interest-rate environment, these sectors still have a relative advantage for allocation funds. Recent market performance shows that high-dividend sectors demonstrate strong defensive properties. On one hand, against the backdrop of significant market volatility in early February, technology and high-elasticity cyclical sectors experienced larger declines; for example, non-ferrous metals fell by 8.51%, and communication and electronics sectors declined over 5%. In contrast, high-dividend and stable sectors experienced relatively limited declines, with weekly gains over 1% in food and beverages, transportation, banks, and household appliances, providing some stability to the index. On the other hand, from a valuation repair perspective, although marginal warming has occurred since the beginning of the year, high-dividend sectors still operate within historically low valuation ranges. The price-to-book ratios of banks, household appliances, food and beverages, and transportation are generally below the 10-year 30th percentile, mainly reflecting a recovery from previous oversold conditions rather than a trend driven by sentiment or capital chasing, leaving valuation safety margins relatively ample.

The core reason why the high-dividend sector currently has allocation value is the combined support from marginal improvement in international liquidity, a strengthening RMB exchange rate, and domestic policy expectations. First, the international liquidity environment continues to improve, favoring high-dividend sectors. This week, U.S. President Trump repeatedly signaled the possibility of a Fed rate cut, and on February 5, the U.S. Department of Labor reported an increase of 22,000 in initial unemployment claims, indicating further signs of labor market weakening. As a result, expectations for a rate cut by the Fed in June have risen sharply, with markets generally expecting two more rate cuts within the year. In this context, the dollar index continued to decline, and long-term U.S. Treasury yields faced limited upward momentum, which is conducive to raising risk premiums for global equity assets. Second, the marginal strengthening of the RMB exchange rate is beneficial for improving capital structure. As the expectation of a weaker dollar intensifies, RMB exchange rate volatility pressure has temporarily eased, and foreign capital’s allocation logic for A-shares is gradually shifting from “trading participation” to “medium- and long-term allocation.” During this process, the attractiveness of technology and some cyclical sectors with high valuations and volatility has decreased, while sectors with higher safety margins, stable cash flows, and strong dividend certainty, such as high-dividend sectors, are more likely to become preferred choices for foreign and allocative funds. Third, the domestic policy environment provides medium-term support for high-dividend sectors. From a policy orientation, the focus on boosting domestic demand and stabilizing economic expectations by 2026 is relatively clear, with fiscal and structural policies still having room for further efforts. Meanwhile, under the policy guidance of “preventing risks, strengthening regulation, and promoting high-quality development,” regulators tend to guide market funds from high-volatility, crowded sectors toward low-valuation, steady-return assets. In this context, high-dividend sectors feature relatively manageable downside risks and gradually accumulating upside potential, further highlighting their medium-term allocation value.

Outlook for the future: Short-term structure remains technology-driven, while high-dividend sectors may become one of the main themes in the medium term. In the short term, the market will continue to maintain a pattern of structural activity and index oscillation. Under event catalysts and risk appetite support, the technology sector still has a basis for phased activity, especially in an environment before the Spring Festival where funds tend to be more trading-oriented and holding periods shorter. Segments such as AI applications, robotics, and semiconductor equipment still have room for repeated performance. Meanwhile, as some high-elasticity cyclical sectors experience phased capital outflows, internal market rebalancing accelerates, and high-dividend sectors are likely to see a marginal improvement window in relative returns. In the medium term, the logic for allocating high-dividend sectors will become clearer. After the Spring Festival, with the upcoming Two Sessions, expectations for stabilizing growth, promoting consumption, and advancing capital market reforms are gradually realized, and market styles are expected to shift from “high-elasticity trading” to “certainty-based allocation.” During this process, sectors with low valuations, stable profits, and high dividend certainty may experience a sustained and stronger repair rally rather than a short-term pulse rebound.

2. Investment Recommendations

Short-term: seize opportunities in technology sectors with low crowding, and gradually shift to high-dividend, low-valuation allocations in the medium term. Operationally, a phased response strategy is recommended. Before the Spring Festival, the market is still dominated by trading funds; strategies can continue to participate in technology sectors with a trend basis, focusing on segments with relatively low crowding, strong net capital inflows, no significant prior major upward waves, and having completed a correction cycle—such as AI applications, robotics, and semiconductor equipment—as phased allocation targets. After the Spring Festival and the Two Sessions, gradually increase the proportion of high-dividend, low-valuation sectors in the portfolio, focusing on banks, food and beverages, transportation, and other sectors with stable cash flows and dividend capabilities to hedge portfolio volatility and enhance overall return certainty. At the same time, maintain caution with sectors highly related to consumption but with limited profit elasticity and unclear policy benefit paths, to avoid unnecessary drawdowns during style shifts.

Risk Warning: Unexpected tightening of global liquidity, market complexity exceeding expectations, and the pace of policy changes being more complicated than anticipated.