Schroders: Focus on structural opportunities for high dividend assets during the easing cycle

Shroders Fund Management Co., Ltd. Vice President An Yun wrote that the August financial market fluctuated, and from the perspective of market industry sectors, the anti-dropping ability of high dividend sectors such as banks, energy and transportation was strong, while the growth sectors were relatively weak. He said that he was cautious about the financial market at this stage. As the possibility of the US Federal Reserve (Fed) cutting interest rates in September became clearer, there were still structural opportunities for China's A-share sectors, so he preferred to hold a certain position to capture structural opportunities.

First, from the July Chinese economic data and recent corporate mid-year results, the economy and corporate profits seemed to still be in a bottom-seeking state. Two keywords can summarize this trend, namely, "insufficient domestic demand" in a phased manner and "downgrading consumption" in a phased manner. From the annual report perspective, this reflects the double decline of revenue and profit margins in a phased manner, putting pressure on corporate profits. If the corporate mid-year results period ends, it may be necessary to re-evaluate the valuation and profit status of the financial market.

Second, the signal of the US cutting interest rates in September is becoming clearer, and the financial market is seeking a balance between weak economic data and stronger monetary policy. He believes that the probability of the US economy "soft landing" is high, and the cut in interest rates may not be as aggressive as expected by the financial market, and it is expected to cut interest rates by 50 basis points.

Third, he believes that there are still some structural investment opportunities. Considering that the current stock market valuation is low, the stock market is likely to see structural opportunities. Therefore, he still holds a certain position to seek excess returns. He said that the industries worth paying attention to include: high dividend (focusing on the sustainability of dividend/earnings), some undervalued white horses, sports, machinery engineering, power equipment, solar photovoltaic and electronic semiconductors, etc.

Fourth, from a long-term perspective, it is recommended to seek returns from two lines. The first is bond-like assets in stocks, namely high dividend assets. This type of stocks has a similar logic to long bonds. In the context of long-term downward interest rates, some enterprises with long liabilities will continue to seek long-term high-yield assets. High dividend stocks are good choices, but attention should be paid to the sustainability of corporate dividend payouts, profitability and business models. The second is the competition of Chinese enterprises in the global supply chain. In the past two years, there are still many enterprises that can continuously gain market share in the global market, which is a rare structural growth area worth careful exploration.