DBS: Stimulus policies may drive capital to the Mainland and Hong Kong stock markets to be optimistic about high-interest domestic bank stocks

The Zhitong Finance App learned that the Mainland recently released a number of policies, driving the mainland and Hong Kong stock markets to rebound from a low level. He Jiaqi, head of DBS's North Asia Chief Investment Strategy Team (Wealth Management Department), said that all of these policies are unprecedented and help drive market sentiment. Many fund managers have reduced China's allocation earlier. If policies are introduced later, a slight shift in capital allocation will be enough to raise the stock market.

She mentioned that the policy has not actually been implemented since it was announced, and the impact on the profits of listed companies has not been seen at this stage. However, many fund managers reduced their holdings of Chinese stocks for different reasons before the policy was changed. Currently, new policies have emerged. Naturally, they hope to increase their holdings, or even try to increase the allocation to the same weight as before.

She pointed out that in the MSCI Global Index, US stocks account for about 65% of the market capitalization, while China only accounts for about 3%. Since funds generally increase their holdings of US stocks, once there is a change in capital allocation, part of the capital flows from US stocks to China, which is enough to drive the stock market forward.

On the sector side, He Jiaqi is optimistic about the prospects of domestic bank stocks with high dividends. When asked if the policy will affect bank profits and dividends, she expected the industry to make some sacrifices due to the policy. It is estimated that BOC profits will remain flat, but there are no risks to asset quality or dividends. The average dividend payout ratio of the Bank of China is about 33%, and even if it earns a few percentage points less, it is still able to pay dividends. She sees the Bank of China as an alternative to bonds, and expects most of the returns to come from dividends rather than rising stock prices.

On the peripheral side, He Jiaqi believes that interest rate cuts are the theme for the fourth quarter. The Federal Reserve's unexpected interest rate cut by 0.5% will increase the possibility of a soft economic landing, and it is expected that the stock market rebound will expand to sectors other than US technology stocks. The bank prioritizes both US stocks and Asian (excluding Japan) stocks on a 3-month and 12-month basis.

Recently, gold prices have continued to reach new highs. She admits that even though the price of gold has risen to a high level, geopolitical factors and a weak US dollar are all favorable to gold prices, so gold currently accounts for about 6% of the overall allocation. Most central banks don't want to hold too many dollars. Gold has become another safe haven asset worth holding. Many central banks are gradually increasing their gold holdings, a factor supporting the price of gold in the long term. The bank's 12-month target price for gold is $2,835 per ounce.