Why Hang Seng High Dividend ETF Outperformed the Market

The Global X Hang Seng High Dividend Yield ETF (3110 HK) has drawn investors’ attention by consistently outperforming the general market.

This trend was also demonstrated in the first four months of the year. From the beginning of January through April, the ETF delivered an exceptional performance, surging by over 10%. In contrast, the broad market Hang Seng Index (HSI) remained relatively muted.

But it’s not only for this year. For the last ten years to April 2026, the underlying index’s annualized return was 11.5% vs. 5.7% for Hang Seng Inex, implying 5.7% annualized excess return.

What lies behind the index’s sustained outperformance? The driving forces can be broken down into three pillars: valuation re-ratings, macroeconomic shifts, and structural industrial reforms.

Background 1. Re-rating

The primary background driving the index’s outperformance is the structural valuation re-rating of Chinese State-Owned Enterprises (SOEs) and traditional industries. The constituents of the Hang Seng High Dividend Yield Index are concentrated in mature, legacy sectors.
Following prolonged market corrections throughout the 2010s, these companies traded at historically depressed multiples, frequently languishing at a Price to Earnings ratio (PER) of 5~6x and a Price-to-Book ratio (PBR) below 0.5x.

Recently, resilient operational earnings coupled with aggressive state-backed capital market reforms—such as “New Nine Measures(新国九条, 2024)” aimed at enforcing corporate payouts—triggered a powerful valuation re-rating.

Even with its 12-month Forward PER expanding toward the 9x range, the index continues to trade at a steep discount to Western benchmarks, such as the Dow Jones US Dividend 100 Index.

 

Background 2. Widening Yield Gap

The second background is the evolving yield environment in Mainland China in favour of high-yielding equities. Low inflation and ample liquidity have compressed the 10-year government bond yield to approximately 2%, a steep decline from the 4% level maintained during the early 2010s. Simultaneously, banks’ one-year deposit rates have trended below 1%, compelling retail and institutional investors to seek out yield-generative alternatives like high dividend yield stocks

This transition has catalysed historic capital inflows into Hong Kong via the Southbound Stock Connect infrastructure. Because dual-listed state-owned enterprises traditionally trade at deep valuation discounts in Hong Kong (H-shares) relative to their domestic mainland listings (A-shares), their effective dividend yields have been higher.

Background 3. Reforms

The final background stems from a stabilized, consolidated competitive landscape.
While the State-Owned Enterprises (SOEs) within the ETF’s portfolio generally deliver modest revenue growth, they generate resilient free cash flows. Thanks to the sweeping “supply-side reforms(供给侧结构性改革)” implemented over the past decade, upstream industries such as materials, energy, and infrastructure, have largely eradicated excess capacity and achieved market consolidation.

Furthermore, the regulatory landscape has evolved to structurally enforce capital discipline. Beijing’s landmark “New Nine Measures(新国九条)” framework has effectively curbed corporate overinvestment. Because access to fresh equity financing from the capital markets has been significantly reduced and highly scrutinized under these regulations, companies are disincentivized from pursuing speculative capital expenditure. Instead, they are channeled toward boosting shareholder distributions.