At Value Partners, we believe that the best way to invest in China is through an actively managed total-return approach that favours stable, sustainable, high-quality companies with dependable dividends.

Despite common perceptions, successful investing in China has not been just about harnessing growth; historically, dividend-paying stocks have outperformed. But we believe that conditions are becoming even more favourable for dividend-focused investors, with supportive long-term structural trends in place on both the supply and demand sides.

• As China’s growth normalises and its population ages, we expect deflationary pressures to lead to a sustained period of low interest rates, creating a positive environment for income-paying equity investments.
• At the same time, a great asset reallocation is underway as China’s population diversifies exposure away from the property market to other investment opportunities and as an older population seeks alternative sources of income. The development of China’s private pensions industry and new regulations in the insurance industry should also create robust and sustainable demand for dividend stocks.
• Meanwhile, the Chinese government is taking action to improve returns on equity, payout ratios and overall shareholder returns from state-sector companies. More broadly, companies listed on the main boards of the Shanghai and Shenzhen stock exchanges are now required to meet minimum payout ratios. These reforms bode well for income returns from the equity market.

Collectively, these structural trends should provide strong support for dividend-driven investing in China now and in the decades ahead.

We set out the case for the dividend-focused approach in the latest whitepaper. We hope this will help investors reappraise why they invest in China and how they can best extract alpha from the country’s equity markets.