Introduction: Recently, a series of significant policies have been introduced, continuously "igniting" market enthusiasm. A news item about the "implementation of a 500 billion swap facility" has emerged, bringing the market's focus back to high-dividend assets. What changes will the implementation of the swap facility bring to the capital market? Why is it said that high-dividend assets may be the first choice for institutional funds in terms of future allocation direction? Today, the editor will discuss with everyone why high-dividend assets always have their "true fragrance" law.
Event One: The "stock repurchase and increase loan" policy is introduced to help revalue the value of high-dividend assets
"On September 24, People's Bank of China Governor Pan Gongsheng announced at a press conference held by the State Council Information Office that a stock repurchase and increase loan will be created to guide commercial banks to provide loans to listed companies and major shareholders for the repurchase and increase of listed company stocks, with an initial quota of 300 billion yuan. On the evening of October 7, Bairen Medical announced that the company's controlling shareholder and actual controller, Jin Lei, planned to use special loan funds to increase the company's A-share shares, becoming the first listed company in the A-share market to use this tool. On October 14, eight listed companies under China Merchants Group (China Merchants Shekou, China Merchants Port, China Merchants Shipping, China Merchants Highway, China External Transportation, Liaoning Port Shares, China Merchants Nanyou, China Merchants Jiyu) disclosed the repurchase or increase plan announcement."
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The loan interest rate for commercial banks in the "stock repurchase and increase loan" policy is 2.25%. Because the People's Bank of China will issue reloans to commercial banks, the proportion of fund support provided is 1.75% of the service reloan interest rate, and commercial banks will add 0.5 percentage points when lending to customers, that is, 2.25%.
For companies with high dividend rates, their dividend rate has a clear "spread benefit" (the difference between the dividend rate and the reloan interest rate) under the 2.25% loan interest rate. This policy helps major shareholders to repurchase and increase shares at a lower cost and obtain "spread benefits". Therefore, these listed company major shareholders may also actively increase the frequency of increases and dividend ratios, which further benefits investors.
Taking a listed company with a dividend rate of 5% as an example, assuming the stock price remains unchanged, borrowing 200 million yuan at a 2.25% interest rate to increase, the dividend received is 10 million yuan, and the loan interest to be repaid is 4.5 million yuan, with an expected net income of about 5.5 million yuan. We can also make an intuitive formula:
A listed company with a dividend rate of X% (greater than 2.25%), under the assumption of a fixed stock price, borrows Y billion yuan at a 2.25% interest rate to increase and hold until the dividend, and the spread benefit it can obtain = (X-0.0225)*Y
From the above formula, it can be seen that the higher the dividend rate X% or the Y of borrowing to repurchase and increase, the higher the spread benefit.
In conjunction with the market value management guidance document issued by the China Securities Regulatory Commission on 9.24, it is clear that repurchase is one of the key points of market value management. Therefore, companies with market value management demands (such as listed companies with a net asset value break) and high dividend rates above the loan interest rate are expected to use this tool first. While obtaining spread benefits, industrial capital achieves a positive cycle of company stock prices through "repurchase → increase stock price → dividend".
Event Two: The central bank's 500 billion "swap facility" tool is implemented, highlighting the value of the high-dividend sectorOn October 10, 2024, the People's Bank of China announced the creation of the first phase of the "Securities, Fund, and Insurance Company Swap Facility" with a scale of 500 billion yuan. This initiative supports eligible securities, fund, and insurance companies to use bonds, stock ETFs, and Shanghai-Shenzhen 300 constituent stocks as collateral to exchange for high-grade liquid assets such as national treasury bonds and central bank bills from the People's Bank of China. The funds obtained by the relevant institutions through the use of this tool can only be used for investment in the stock market. On October 11, CITIC Securities and CICC have already submitted swap facility plans.
On one hand, the primary purpose of the "Swap Facility" tool is to enhance the inherent stability of capital market financing and investment, and to support the healthy and stable development of the stock market. Although after the swap is completed, the proportion of risk assets held by institutions decreases (they cannot sell the assets mortgaged to the central bank), and the proportion of safe assets increases (national treasury bonds, central bank bills), the core demand of leveraging through secondary pledge financing and investing in the stock market is to enhance the inherent stability of the capital market and reduce market volatility. Therefore, institutions are more motivated to prioritize the selection of high market value, high dividend, state-owned enterprises, low valuation, and other quality assets with "stability" characteristics.
On the other hand, it is quite possible that after the central bank swaps assets with non-bank institutions through the "Swap Facility" tool, the non-bank institutions receive high-grade national treasury bonds and central bank bills that cannot be sold but can be pledged, which aligns with the tool's positioning of not issuing base money. In this case, the actual cost of funds for non-bank institutions is the cost of money in the money market, and the potential arbitrage space may be the difference between the stock dividend rate and the repurchase rate of pledged loans. Some institutions estimate that the interest rate in the "Swap Facility" policy is around 2%, which means that non-bank institutions can obtain pledged loans at a cost of 2% to increase their stock positions, creating an arbitrage space with high dividend assets.
High dividend sectors may benefit from the swap facility tool and shareholder repurchase and increase loans
Through the above two financial policies, at the listed company level, companies can obtain stock increases and repurchases at low interest rates (especially companies with high asset-liability ratios), and at the non-bank institution level, they can invest in high dividend assets at low interest rates. Both can achieve "interest arbitrage benefits" to obtain higher investment returns, so it is a direct boost to high dividend assets such as those with "China" in their names. In addition, in recent years, high-level policies have been promoting market value management of listed companies, increasing dividend ratios, and increasing dividend frequencies, all of which are conducive to the valuation increase of high dividend assets. On September 26, the Central Financial Office and the China Securities Regulatory Commission jointly issued the "Guiding Opinions on Promoting Medium and Long-term Capital into the Market", emphasizing the removal of institutional obstacles affecting long-term investment of insurance funds. Dividend stocks are also more suitable for meeting the long-term capital allocation needs, and the sector's market outlook is expected to be boosted.
In summary, the revaluation of high dividend assets is far from over. The "Swap Facility" and "Stock Repurchase and Increase Loan" policies help to increase the revaluation of high-quality assets with the ability and willingness to repurchase and high dividends. In the medium and long term, against the backdrop of low market interest rates, the decline in the market's risk-free interest rates may make the investment value of the high dividend sector more prominent, and it is expected to continue to attract incremental capital inflows.