U.S. stocks have Magic 7, A shares look at YYDS 4! According to the latest research report of Bank of America Merrill Lynch, in the context of the rapid reform of state-owned enterprises, the bancassurance (yinhang), operators (yunyingshang), telecommunications (dianxin) and petroleum and coal (shiyoumeitan) dominated by state-owned enterprises have become the four major high-yield sectors in China this year, which can be called "yyds" (eternal gods).
In particular, the oil and coal sectors have achieved 20% returns so far this year, leading the way across all sectors, with the banking sector also returning 9%, while the MSCI China Index fell 2% over the same period.
Even if the time horizon is extended to 3 or even 10 years, these sectors still outperform**. Bank of America Merrill Lynch statistics show that from the end of 2013 to the present,The coal segment has cumulatively generated more than 300% of total earnings (including dividends)., the banking sector reached 110%, and the insurance sector reached 72%, much higher than the MSCI China Index's less than 10%.
The asset strategy team led by Bank of America Merrill Lynch Winnie Wu said in a research report released this week that it is optimistic about the investment opportunities of state-owned enterprisesEspecially those state-owned enterprises that are highly defensive and have high yields.
The agency believes that compared with private enterprises, state-owned enterprises have cheaper valuations, better earnings certainty, and more transparent policy risks. After a decade of SOE reform, the repricing of SOEs** will bring more investment opportunities.
Reform of state-owned enterprises 20: Unleashing Enterprise Value During the first half of 2014-2022, the median price-to-earnings ratio of China's top 10 private companies in the MSCI index fluctuated between 25 times and 45 times, but this figure has dropped sharply to about 15 times since 2023. During the same period, the median price-to-earnings ratio of China's top 10 MSCI enterprises has remained at around 5-7 times.
It can be seen that although the valuation of state-owned enterprises is not high, it still shows a more stable level than private enterprises in the face of increased uncertainty in the market environment.
Behind the stable valuation is the second wave of SOE reform.
Over the past decade, China's SOE reform has focused on mixed-ownership reform, corporate governance, and supply-side reforms. Since the fourth quarter of 2022, unlocking the value of state-owned enterprises has become a policy priority for regulators.
In November 2022, the China Securities Regulatory Commission (CSRC) proposed to "explore the establishment of a valuation system with Chinese characteristics to promote the better performance of market resource allocation functions". In December, the Shanghai Stock Exchange announced a three-year action plan, noting that "promoting the return of central SOEs to a reasonable level of valuation" is a top priority.
In January 2023, the State-owned Assets Supervision and Administration Commission (SASAC) put forward the assessment index of "one profit and five rates", with the goal of "one increase, one stability and four improvements", with more emphasis on profit content and cash flow security.
In 2024, this effort continues. In January, the SASAC saidFurther research will be carried out to incorporate market value management into the performance appraisal of the person in charge of the enterpriseGuide the person in charge of the enterprise to pay more attention to the market performance of the listed company they hold.
Bank of America Merrill Lynch believesIn the short term, the revaluation of SOEs will help stabilize confidence in the A** market, especially after the Chinese market has sharply** in January 2024 and over the past three years. In the long run, this will help promote the structural and stable appreciation of the A-share index, attract more individual and institutional investors to participate in the A** market, and support the continuous financing of Chinese enterprises.
After two years of hard work, A-share listed SOEs have indeed improved compared to private enterprises in terms of revenue growth, leverage ratio and return on equity (ROE).
Among them, the dividend payout ratio of central enterprises has increased from an average of less than 45% in 2018-2020 to 50-55% in 2021-2022. The payout ratio of local and other state-owned enterprises rose to more than 45% in 2022, while the payout ratio of financial institutions remained stable at around 30% in comparison.
In addition, among the constituent companies of the MSCI China Index, bancassurance, telecommunications, utilities and oil and coal, the four state-owned enterprises (SOEs) dominated by the sector have the highest dividend yields, ranging from 5% to 7%.
Bank of America Merrill Lynch pointed out that the overall repurchase of state-owned enterprises is still uncommon, and the largest repurchase subjects of AH shares so far are mainly private enterprises in the Internet consumer goods industry and financial institutions in Hong Kong.
Over the past 5 years (2018-2022), the average buyback yield for the S&P 500 has been 60%, the FTSE 100 has been about 30%, the Nikkei 225 has been about 15%, but the CSI 300 has only 1%.
At the same time, the scale of buybacks by state-owned enterprises is not large.
From 2019 to 2023, the total annual buyback of A-share companies is only US$10 billion to US$20 billion, which is much lower than the annual cash dividend of US$200 billion to US$300 billion. In the past two years, total buybacks by Hong Kong-listed companies have increased to US$13 billion to US$16 billion, mainly due to a small number of leading companies.
Wall Street news, welcome **app to see more.