Under a new trading link between Singapore and China, retail investors can now have a unique opportunity to invest in leading Chinese companies listed on the Shanghai Stock Exchange (SSE).
Listed on the SGX’s Mainboard on December 1, the CSOP Huatai-PineBridge SSE Dividend Index ETF (exchange-traded fund) by CSOP Asset Management is one of the first pair of products made possible under the SSE-Singapore Exchange (SGX) ETF link set up earlier this year. The CSOP iEdge Southeast Asia+ TECH Index ETF was cross-listed on SSE on the same day.
The new ETF provides exposure to specially selected companies that are listed in Shanghai and have shown records of yielding high dividends. This means investors can potentially benefit from steady income streams, as well as tap into the long-term growth prospects of China’s vast market.
Here are some key questions investors may have about investing in the Chinese market through the CSOP Huatai-PineBridge SSE Dividend Index ETF.
With China’s economy still sluggish, why should investors consider investing in Chinese stocks?
While China’s growth has slowed in recent years, the International Monetary Fund (IMF) in November raised its forecast for the world’s second largest economy to 5.4 per cent in 2023, and 4.6 per cent in 2024. The IMF attributed this upward revision to China's approval of a one trillion yuan (approximately S$187 billion) sovereign bond issue, and other measures to support the economy.
According to CSOP, China’s inflation and central government debt also remains relatively low, leaving room for further stimulus. The country’s high savings rate also means that there is the potential for domestic consumption to revive once confidence in the economy is restored.
What is a dividend ETF and what benefits do such ETFs offer investors?
A dividend ETF is a fund that invests mainly in stocks of companies known for paying high dividends. Dividend-paying companies are often established and financially stable, potentially reducing investment risk. Dividend ETFs can also offer diversification, spreading risk across various sectors and companies.
Dividends were a key driver of the long-term bull market in the United States. Over a 20-year period from early 2001 to now, the total return of S&P 500 Index has been almost 1.8 times of its price return. In other words, half of the total return of S&P 500 Index can be attributed to its dividends and reinvestment income. Given their higher dividend yields and lower valuation ratios, SSE-listed shares could potentially exhibit similar success to the US stocks.
What are the key features of the CSOP Huatai-PineBridge SSE Dividend Index ETF?
The CSOP Huatai-PineBridge SSE Dividend Index ETF is a feeder fund listed on the Singapore Exchange to give retail investors here a platform to invest in high-dividend A-share companies. The feeder ETF does this by investing in a master fund, the Huatai-PineBridge SSE Dividend ETF, which is listed on the SSE.
Listed in 2006, the Huatai-PineBridge SSE Dividend ETF is the first and largest dividend ETF in mainland China, with assets under management of 16.2 billion yuan as of Sept 30, 20231. The Huatai-PineBridge SSE Dividend ETF has been recognised with a number of awards for its performance, including the prestigious “Golden Bull Fund” award in mainland China1.
The master fund tracks the SSE Dividend Index which comprises 50 China A-Shares with the highest dividend yield on the SSE over the past three years.
A-Shares are denominated in renminbi and traded on the Shanghai and Shenzhen stock exchanges.
How has the SSE Dividend Index performed?
The dividend yield of the SSE Dividend Index is 6.10 per cent, significantly higher than that of similar dividend indexes in the US, according to data from Bloomberg as of Nov 3, 2023. For instance, the S&P Growers Index and the Dow Jones U.S. Dividend Index registered dividend yields of 2.02 per cent and 4.05 per cent respectively2.
The SSE Dividend Index has also registered a year-to-date total US dollar return (dividends + capital gains) of 3.64 per cent as of Nov 3, 2023, compared to Singapore’s Straits Times Index’s -0.01 per cent and Hong Kong’s Hang Seng Index at -7.84 per cent over the same period3.
Furthermore, the index has a relatively “cheap” valuation, with one of the lowest price-earnings (PE) ratios among its A-share peers. As a result, investors in the ETF could benefit from potential price gain when China’s recovery is back on track, in addition to receiving annual dividend payouts.
How are companies selected for the SSE Dividend Index?
The companies in the SSE Dividend Index are drawn from the top 80 per cent of the broader SSE 180 Index, as ranked by average daily total market capitalisation, and by average daily trading value over the past one year, explains portfolio manager at CSOP Asset Management Bruce Zhang.
Eligible stocks must also have continuously paid dividends in the past three years, have an average dividend payout ratio in the past three years, and a payout ratio in the last year of between zero and one.
The dividend payout ratio gives investors an idea of how much money a company is paying to shareholder in the form of dividends, compared to how much it is keeping to invest in its growth, or pay off debts. By ensuring that the ratio doesn’t exceed one, the index excludes companies that might be paying too much in dividends relative to its earnings, and potentially hampering future growth.
“The companies that pass this screening process are then ranked by average cash dividend yield for the past three years, with the top 50 securities selected to be included in the index. The index constituents are reviewed annually,” says Mr Zhang.
The current top holdings of the index, such as China Petroleum & Chemical Corporation, Guizhou Panjiang Refined Coal and Tangshan Port Group, tend to be leaders in their respective industries and regions. The criteria used to select the companies are not influenced by industry or company type, Mr Zhang explains.
How can Singapore-based investors invest in the CSOP Huatai-PineBridge SSE Dividend Index ETF?
The CSOP Huatai-PineBridge SSE Dividend Index ETF is one of the first products under the SSE-SGX ETF link, providing Singapore investors access to A-share companies with relatively high dividends in China, says Mr Zhang.
He adds: “With a minimum board lot of one share that can be purchased with Singapore dollars, the ETF is easily accessible to local retail investors.”
The SSE-SGX ETF link was launched earlier this year to further strengthen the connectivity between Singapore and China. Under this agreement, SGX and SSE will jointly develop and promote the ETF markets in both countries through a “master-feeder fund” model.
What are the currency risks involved when using Singapore dollars to invest in a renminbi-dominated ETF?
Investing in a China-based ETF with Singapore dollars does expose you to currency risk. This risk arises because the underlying assets of the ETF are priced in renminbi, while your investment is in Singapore dollars. Therefore, any fluctuation in the exchange rate between the two currencies can affect the value of your investment, explains Mr Zhang.
He adds that if the Singapore dollar strengthens against renminbi, the value of your investment, when converted back to the local currency, could decrease, even if the underlying assets’ prices are not materially changed. Conversely, you could benefit if the renminbi strengthens against the Singapore dollar, all else equal.
Visit the CSOP Asset Management website for more information.
1 Source: Wind, Huatai-PineBridge Investment
2 Past performance is not indicative of future performance.
3 Source: Bloomberg, CSOP, as of Nov 3, 2023
Disclaimers
The investment product, as mentioned in this document, is registered under section 286 of the Securities and Futures Act (Cap. 289) of Singapore (the “SFA”). This material and the information contained in this material shall not be regarded as an offer or solicitation of business in any jurisdiction to any person to whom it is unlawful to offer or solicit business in such jurisdictions. CSOP Asset Management Pte. Ltd. (“CSOP”) which prepared this document believes that information in this document is based upon sources that are believed to be accurate, complete, and reliable. However, CSOP does not warrant the accuracy and completeness of the information and shall not be liable to the recipient or controlling shareholders of the recipient resulting from its use. CSOP is under no obligation to keep the information up-to-date. The provision of this document shall not be deemed as constituting any offer, acceptance, or promise of any further contract or amendment to any contract. The information herein shall not be disclosed, used or disseminated, in whole or part, and shall not be reproduced, copied or made available to others without the written consent of CSOP.
Advice should be sought from a financial adviser regarding the suitability of the investment and/or investment product before making an investment. Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not necessarily indicative of future performance. Investor should read the prospectus and product highlights sheet, which can be obtained on CSOP website or authorized participating dealers, before deciding whether to invest. This document has not been reviewed by the Monetary Authority of Singapore.
For risk disclosures and Index Provider disclaimer, please refer to prospectus and product highlights sheet.
