As December 25th and 26th marked a holiday break in the financial markets, many Exchange Traded Funds (ETFs) tracking Hong Kong stocks faced a suspension of redemption and subscription servicesHowever, momentous investor enthusiasm toward dividend stocks in Hong Kong continued to swell, causing a remarkable shift of capital towards A-shares that correspond to these dividend-focused ETFsConsequently, numerous such products surged to the forefront of growth rankings among ETFs.

Data reveals a notable uptick on December 25th, where out of the 1,032 ETFs available in the market, the Wanjiabank’s Hong Kong central enterprise dividend ETF, which tracks the Hong Kong Stock Connect Central Enterprise Dividend Index, exhibited a striking rise of over 7%, leading the pack in daily increasesIt also recorded a premium rate of 9.18%.

The trading volume of this particular fund expanded significantly to approximately 998 million yuan, demonstrating a staggering growth of 4.75 times when juxtaposed with the preceding day’s trading volume of 210 million yuan

By market closure on the same day, the total shares of the fund were valued at about 125 million.

Just after midnight on December 26th, Wanjiabank promptly issued a warning regarding the risk associated with the premium rate of their own Hong Kong central enterprise dividend ETF on the secondary market, cautioning investors against blindly investing in funds featuring elevated premium rates, as significant financial losses might ensue.

Following closely was the China Merchants Fund with its Bank ETF Select, which tracks the AH index of banks, famously hitting a rare trading halt at its peak during the dayThe fund exhibited a premium rate of 6.31% and concluded with an increase of 6.94%, amounting to a trading volume of approximately 23.43 million yuan—about tenfold compared to the previous day's trading volume.

On the same date, China Merchants Fund also disseminated a notice highlighting that the fund's secondary market trading price substantially exceeded the reference net asset value (IOPV), signaling serious premium occurrences and prompting investor caution.

This product is currently characterized by a relatively small asset scale, with the closing figures indicating about 46.99 million shares on the day in question.

Both of these ETFs have shown impressive growth over the past two months, with an increase exceeding 20%, while their returns within the last five days surpassed 10%. Notably, the Bank ETF Select enjoyed a surge of over 54% since the beginning of the year.

Beyond these instances, other fund companies such as Huaxia Fund have also signaled risks in recent communications.

On December 26th, leading the surge were Haitong Securities' Hong Kong Stock Connect Dividend Low Volatility ETF, and Guotai Junan’s Dividend Hong Kong Stock ETF, each executing a remarkable daily increase of 10%, prompting trading halts

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Both funds exhibited premium rates exceeding 14%, with individual trading volumes clocking in at approximately 234 million yuan and 363 million yuan respectivelyTheir turnover rates soared, hitting 503% and 429%.

Both ETFs have relatively short operational histories and modest liquidityUp to the latest available net asset date of December 25th, Haitong's Hong Kong Dividend Low Volatility ETF, established on September 4, 2024, has yielded a total return of 17.7%, with circulating assets around 41 million yuan.

Similarly, Guotai's Dividend Hong Kong Stock ETF, launched on July 23, 2024, has thus far achieved a total return of 11.36%, with a circulating asset of roughly 76 million yuan.

Ranked third was Wanjiabank’s Hong Kong central enterprise dividend ETF, boasting a growth of over 5.6% along with a premium rate surpassing 15%, and an astonishing turnover rate of 614%, suggesting a pronounced speculative trend in trading behaviors.

The exuberance among investors regarding Hong Kong’s dividend sector can be largely ascribed to several compelling reasons.

First, there’s the attractive valuation in the market

After years of sustained adjustments, the Hong Kong stock market currently presents valuations near a relative lowThroughout December, although the market exhibited volatile rises, the asset valuations compared to global equities still resonate with cost-effectivenessMoreover, the advantageous policies culminating in high dividend distributions further accentuate investor anticipation for the value of configuring central enterprise dividend assets in their portfoliosThe influx of funds from mainland investors embracing Hong Kong equities appears unabated.

Historically, Hong Kong’s valuations remain modest by comparisonAs of the most recent trading day on December 24, 2024, the Hang Seng Index displayed a PE ratio of 9.19, approaching the median rate of 8.97, while the current PB ratio stands at 0.96, both metrics indicating a historical low.

Secondly, another factor driving enthusiasm is the appeal of high dividend yields

In light of ongoing policies promoting market capitalization management and taxation reductions on dividends, the investment value of central enterprises has garnered increasing recognitionAdditionally, the yield for ten-year national debt has plummeted below 1.7%, delineating a scenario where the yield on bonds has entered the "1.0% era." In such a low-interest climate, the investment return on dividend-generating assets is amplified, especially as dividend stocks in Hong Kong consistently yield higher dividends compared to comparable assets in A-shares.

The cash dividends from the Hang Seng Index have notably risen since 2020, with 2023 witnessing an annual dividend yield reaching 4.2%, and the cash dividends distributed throughout the year surmounting to an impressive 857.8 billion yuan.

On November 28th, shares of Hong Kong central enterprise dividend ETFs were openly promoted by Li Bei of Banxia Investment, attracting substantial interest from many investors who subsequently cascaded into buying without specifying a particular fund

Li Bei herself described the investment merits of these ETFs using a "6-6-6" metric, representing roughly 6x PE, 0.6x PB, coupled with a 6% dividend yield.

Furthermore, as the component stocks consist solely of central enterprises, they inherently possess greater safety; significantly, these stocks are also markedly cheaper in the Hong Kong market compared to their A-share counterpartsThe ETF structure offers a diversified investment approach, making it particularly suited for retail investors.

“This ETF is well-rounded and, in terms of absolute value, surpasses the mainstream Shanghai and Shenzhen 300 Index by at least a factor of two,” Li Bei remarked.

This year has seen exceptional performance from dividend-focused assets in Hong KongAccording to Wind data, up to December 24, 2024, the index for China Securities Hong Kong Stock Connect High Dividend Investment recorded an impressive growth rate exceeding 35%, significantly outperforming the total return growth of the Hang Seng Index during the same period.

Institutional analysts note that for everyday investors interested in Hong Kong's dividend investment sector, opting to invest through public mutual fund ETFs presents a more efficient operational method with lower entry thresholds–furthermore, it circumvents the necessity of utilizing personal foreign exchange quotas, offering simplified investment benefits.

Despite such robust surges, concerns has surfaced amongst individual investors regarding the prospect of excessive capital influx potentially catalyzing volatility against the low-volatility narrative