Zhongtai: Does the upward trend in coal stocks represent the resurgence of "inflation trades"?

Zhongtai released a research report stating that the rise of the coal sector last week was not a return to "inflation trading", but rather a result of the repricing of high dividend assets. Against the backdrop of low risk-free rates and policy strengthening cash flow visibility, the 5%-10% high dividend yield of coal stocks significantly increased investment attractiveness. The social security contribution and state-owned assets revitalization policies further strengthened this logic: the former stabilizes costs to curb significant fluctuations in the PPI, while the latter improves the fiscal environment and enhances the value of high dividend assets allocation. The current market values dividend returns over cyclical elasticity, and defensive positioning under "bottom-line thinking" becomes the preferred choice for capital. Zhongtai stated that it maintains its previous judgment unchanged, that in the third quarter, with risk appetite still high and further strengthening of corporate profit differentiation, the market is expected to continue in a strong fluctuating pattern. In terms of allocation, continue to adhere to the strategy of "both offensive and defensive": on one hand, focus on the new quality productivity represented by the technology mainstream (AI, Siasun Robot&Automation, computing power); on the other hand, continue the defensive allocation of high dividend assets in the Hong Kong stock market, and maintain active attention to non-banking financial sectors such as securities firms and insurance companies, to receive multiple support from policy expectations, trading activity, and dividend returns. Key points are as follows: 1. The strong performance of the coal sector last week was initially interpreted as the return of the "inflation logic". However, looking at it from the perspective of policy background and pricing characteristics, the core DRIVE of the rise in coal stocks was not a systematic increase in commodity prices but rather the repricing of high dividend assets. The strengthening of this logic is closely related to the implementation of the social security contribution policy and the revitalization of state-owned assets in real estate, and "bottom-line thinking" has become a potential variable of uncertainty. 2. The upward trend in coal stocks is not a return of "inflation trading". The premise of inflation trading is for policies to drive PPI to rise, through supply-side contraction or demand stimulation to cause a rise in commodity prices, thereby driving the valuation and profit recovery of cyclical sectors. High dividend trading is established in a stable or even mildly declining commodity price environment, where the market values the contribution of company's cash flow and dividend yield to investment returns. From a policy perspective, the current rise in coal stocks is more in line with the latter logic. The recent focus of the State Council is on "anti-Incubing" and "expanding domestic demand", emphasizing the optimization allocation of resources through the construction of a "unified national big market". This is fundamentally different from the policy in 2016 that expected to raise PPI through mandatory capacity reduction. Therefore, the current rise in coal stocks is not based on the logic of cyclical recovery but rather benefited from factors such as the slowdown in the decline of commodity prices, stable cash flow, and the increased investment value of dividend returns. 3. The attractiveness of coal stock dividends has significantly increased, and funds are "exchanging risk for return". With risk-free rates remaining low and the bond market stable, the current dividend advantage of coal stocks is particularly prominent: the industry's average dividend yield in 2024 exceeds 5%, with some leading enterprises exceeding 10%, far higher than national bond yields and most dividend assets. This makes coal stocks naturally have a "dividend replacement" attribute. In fact, in the past week, there have been similar signals in the overall market style: bank stocks strengthening, mid-to-small-cap rebound, Hong Kong low volatility dividend rise, all reflecting a preference for funds to return to the defensive logic of "visible cash flow, dividend covering risk". 4. Policy strengthens "high dividend trading", with social security contributions and state-owned assets revitalization. Last week, two key policies further solidified the market's preference for high dividend assets. First, the social security contribution system was strengthened. The Supreme People's Court explicitly stipulated that any agreement of "non-payment of social security" is invalid, and companies are required to bear the responsibility for payment and compensation. This policy solidifies the source of social security funds, but may also increase the cost pressure on small and medium manufacturing enterprises. In order to avoid further increasing the burden on enterprises under external tariff impact, the country is more likely to choose to stabilize raw material costs rather than transfer pressure by raising PPI. This indirectly confirms that the rise in coal stocks is not "inflation trading". Second, the revitalization of state-owned assets in real estate. In an article titled "Promoting the Re-development of Inefficient Urban Land" by Jin Guanping in the Economic Daily, it is proposed to "support the transformation of inefficient commercial service land and promote the orderly introduction of collective inefficient land into the market." Earlier, cases of state-owned assets selling existing property and "commercial office rental" have appeared in Beijing, Shanghai, and other places. This policy aims to realize fiscal revenue from revitalizing existing assets, improve fund availability, and reduce dependence on new debt or rising real estate prices. These two policies jointly work on market pricing: on one hand, controlling cost pressures, on the other hand, improving the fiscal and liquidity environment, ultimately strengthening the investment attractiveness of high dividend assets.