As 2025 begins, the A-share market in China has swiftly encountered a round of adjustmentsIn response to this backdrop, dividend-paying stocks, particularly those in the banking sector, have seen a resurgence in popularity among investorsThis trend suggests that the potential main themes of the dividend market for 2025 may already be coming into focus.

The appeal of dividend assets remains robustAccording to research from a prominent financial advisory firm, the dividend stocks in the A-share market can be categorized into four major types: first, the natural monopoly sector, which includes industries like electricity, ports, highways, railways, and gas; second, the resource sector encompassing coal, oil, and petrochemicals; third, the broad consumer sector, which includes food and beverages, textiles, home appliances, and service consumption; and fourth, the financial sector featuring banks and insurance companies.

Since 2021, the dividend index of A-shares has continued to strengthen, entering a bull market phase that has lasted nearly four years

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Within this spectrum, financial dividends have generally lagged behind in growth compared to other categories, particularly natural monopolies and resource-based dividendsHowever, data from 2024 indicates that financial dividend assets have performed exceptionally well during this period.

The consistent rise of dividend-style assets can be attributed to the overall defensive and conservative stance of the capital markets during these timesRisk appetites did not begin to recover until the implementation of a comprehensive set of policies in late September 2024.

Statistics from Wind show that excluding financial sectors and three major oil companies, significant profit growth within the broader A-share market peaked in the second quarter of 2021, followed by a downward trendParticularly, between the second quarter of 2023 and the second quarter of 2024, a six-quarter consecutive decline has been recorded, showcasing declines of -11.7%, -11%, -7%, -3%, -2%, and -4.2% respectively.

Since September 24, 2024, key meetings have set the stage for increased activity in the capital markets with coordinated policy initiatives from critical departments, including the central bank and the ministry of finance

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By January 15, the price-to-earnings ratio of the CSI 300 Index had risen to 17.54 times, surpassing the median valuation of 17.02 times recorded over the past five years, reflecting a return to the high valuation levels seen in 2021.

From a valuation perspective, the market has largely priced in the benefits derived from previous policiesThere is a possibility that the market may transition back to a defensive conservative style, with dividend sectors likely to emerge as one of the main focal points of the market once again.

A shift in market preferences between large and small cap stocks has become increasingly evident, with dividend-paying sectors once more attracting market attentionThis trend could persist into 2025. In anticipation of the important meetings scheduled for December 2024, market expectations have surged, with daily trading volumes maintaining a range between 1.5 trillion and 2.5 trillion yuan, leading to a strong rebound in smaller, thematic stocks surpassing that of larger caps.

With the conclusion of various meetings, the market is entering a period characterized by lowered trading volumes (with transactions dipping below 1 trillion yuan) and a convergence of both large and small cap trends

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This analysis suggests that the dividend sectors are likely to maintain their positive trajectory heading into 2025.

Turning to the banking dividends, there remains the question of which categories of dividend assets are expected to demonstrate explosive potential in 2025.

From a market capitalization perspective, financial and broad consumer dividends seem to be the most promising directionsOver recent years, the overall stock prices of banks in the A-share market have consistently risen, yet fundamentals, including revenue and profits, have faced setbacks since 2021. The primary contributors to this trend include slowing loan growth and diminishing net interest margins.

It is evident that the sustained price increases in the banking sector have not been fundamentally driven but rather fuelled by financial support, leading to valuation recovery

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This influx of capital has predominantly been orchestrated by the 'national team', which refers to state-owned investment bodies such as China's Central Huijin Investment and other institutional investors.

On April 12, 2024, the four major Chinese banks announced simultaneous increases in shareholdings by Central Huijin, which accumulated 1 billion shares across these institutions in the span of half a yearNotably, institutions like Huaxia and Citic were also beneficiaries of direct stakes from the national investment body.

Furthermore, the national team has been indirectly increasing their stakes in banks through exchange-traded funds (ETFs). As of late Q3 2024, the national team maintained a valuation of mainstream ETFs exceeding 940 billion yuan, representing an over 800% surge since the end of 2023.

Under the powerful demonstration effect provided by the national team, the A-share ETF market experienced explosive growth in 2024, with net inflows exceeding 1 trillion yuan, primarily focused on broad-based indices such as the SSE 50 and CSI 300. Among these indices, the banks constituted the largest percentage of holdings, leading to significant benefits for these stocks

According to Open Source Securities, the proportion of bank stocks held by passive index funds has notably increased from 5.78% in Q3 2023 to 8.55% in Q3 2024.

In essence, the national team’s increased stakes in banking stocks are driven by a core intent to stabilize the stock marketThis has been a significant driving factor behind the banks’ ability to continue rising despite a challenging fundamental backdrop.

During a crucial meeting at the end of 2024, China's leadership emphasized the need to stabilize both the real estate and stock markets in 2025. The underlying implication is clear: should irrational market declines occur, the national team will most likely intervene in a manner similar to previous years by boosting their holdings in banks and broad-based ETFs to maintain market stability.

As long as this crucial expectation endures, the banking sector is unlikely to see its uptrend abruptly terminate

In addition, banks such as Industrial Bank and Ningbo Bank are also worth closely monitoring for potential growth.

On one hand, both banks feature strong growth metrics and operational quality that position them favorably within their respective segments, even outperforming the four major banksBetween 2018 and 2023, their compound annual growth rates for revenue were 6% and 16%, while their net profits grew at rates of 5% and 18%. Furthermore, by the end of Q3 2024, both banks reported non-performing loan ratios of 1.08% and 0.76%, with adequate provision coverage ratios of 405% and 234% respectively.

On the other hand, as of January 15, 2025, these banks had price-to-book ratios of 0.55 and 0.86, placing them at historically low valuation levels, indicating considerable room for recovery.

Examining the broad consumer dividend space reveals similar opportunities for substantial returns

In the lead-up to the significant meetings at the end of 2024, a pronounced focus on stimulating consumption and enhancing investment efficiency was outlined as a top priority among other strategic tasks for 2025.

Consumption has been pinpointed as the pivotal element of economic operations, with rare emphasis being placed on its priority status, signaling a profound transformation in economic driversCounter-cyclical policies may shift focus from production-side investments to nurturing consumer demand.

Statistics from Wind indicate that in the first half of 2024, retail consumption accounted for 38.3% of GDP, suggesting that there remains substantial upward potential as compared to the peak of 44.7% attained in 2016. Given the directives stemming from key meetings, various departments in 2025 are set to roll out a series of concrete consumption-boosting measures, likely leading to a sustained increase in its share of GDP.

Projected consumer stimulus policies are expected to cover a wide range of sectors, including essential consumption areas like catering and daily necessities as well as service sectors such as entertainment, tourism, and education

Proposed measures might encompass creating incentives like trade-in programs, consumption vouchers, increasing incomes for targeted groups, and enhancing social security subsidies.

In conclusion, as long as expectations surrounding consumption policy support remain in place, structural opportunities exist within the broader consumer sectorEspecially, leading companies exhibiting dividend attributes and robust growth prospects stand to benefit from a market consensus built around core policy lines.

Moreover, the valuation backdrop for consumer dividends is at a ten-year low level, rendering them particularly attractiveAs of January 15, 2025, the price-to-earnings ratio for consumer dividend indices was 19.28, significantly below the ten-year median of 27.92.

More specifically, within the dairy and beverage sector, companies like Inner Mongolia Yili Industrial Group and Dongpeng Beverage exhibit superior growth profiles and generous dividends, making them prime representatives of consumer dividend assets

Similarly, in the leisure snacking arena, Salted Snack Master stands out for capturing channel reform benefits earlier than its competitors, establishing itself as a dark horse in consumer dividendsIn the services sector, Ctrip's promising fundamentals and notable foreign investments further accentuate its potentialFurthermore, in the durable goods market (including appliances and automobiles), Fuyao Glass and Midea Group are favored by investors.

Apart from these traditional consumer segments, emerging areas such as the "Millet Economy," characterized by younger Z-generation consumers and their interests in cultural products, showcase the need for exploration of potential structural opportunities.

In summary, the two categories of dividend assets—banking and broad consumer goods—are garnering significant attention due to anticipated policy support, making them particularly promising for 2025. Meanwhile, resource-oriented and monopoly-type dividend stocks, which have benefited from strong growth in recent years, may still see opportunities, though realizing excess returns may prove more challenging