As the market stands today, it finds itself entwined in a state of lethargy, with daily trading volumes struggling around the 500 billion yuan markAlthough the overall indices may not showcase steep declines on a daily basis, the reality for individual stocks is starkly differentEach day, the number of stocks that succumb to losses far exceeds those that appreciate, frequently exceeding three thousand, and at times even four thousandThis pervasive downtrend, dubbed "shadow declines," has conditioned many investors to perceive losses as the new normal, with a concerning number of stocks continually hitting record lows.

This ongoing scenario has left many investors feeling numbTheir confidence, mirroring the trajectory of their portfolios, diminishes daily, arriving at even lower levels with each passing weekCast your mind back to the beginning of the year when the Shanghai Composite Index dipped to 2635 points

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At that time, investors held out hope for intervention from regulatory authorities, creating a cacophony of appeals for government action to stabilize the marketToday, even with the index hovering just above 2800 points, that fervent hope has evaporated, replaced by resignation and skepticism regarding the market's future.

However, amidst this gloomy landscape, there are two noteworthy developmentsThe first is the steadfast involvement of state-owned institutions like the Central Huijin Investment CompanyThis "national team" is tirelessly working to ensure the stability of the index, particularly by bolstering the prices of heavyweight stocks, including the country's five major banksThis strategic support has enabled these financial giants to reach unprecedented heights in their stock pricesInvestors who took a long-term stance on these banks have not only weathered the storm of the market's downturn but also managed to secure handsome returns despite the overarching pessimism.

The second positive aspect emerging in this otherwise bleak environment is the wave of cash dividends being announced in conjunction with the mid-year financial reports of listed companies for 2024. Traditionally, interim cash dividends have taken a backseat in terms of significance; however, this year, propelled by encouragement from regulatory bodies, they have initiated a significant shift

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By August 25, a total of 373 A-share companies had disclosed their plans for interim cash dividends, summing to an impressive total of over 160 billion yuanThis figure marks not only a substantial increase in the number of companies participating in dividend payouts but also highlights several firms opting for generous distributions of up to 80%.

Nonetheless, despite the dividend announcements creating a buzz, the overall sentiment in the A-share market remains tepidThe divergence is stark: as the five major banks continually achieve record prices, the broader index faces persistent declines, creating a seesaw effect wherein the fortunes of these heavyweight stocks stand in sharp contrast to those of the myriad other stocks suffering losses.

This seesaw effect, while perplexing to some, is quite understandable within the current financial environmentThe shortage of capital is palpable, with daily trading activity barely grazing the 500 billion yuan threshold

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As more and more funds flow into heavyweight stocks like the major banks, the available capital for smaller and mid-cap stocks dwindles, inevitably spelling trouble for those without adequate support.

The pressing question then arises: with cash dividends gaining traction among publicly listed companies, why does the A-share market languish in its lowly state? This apparent contradiction stems from the recognition that cash dividends alone cannot serve as a panacea for the market's woesDespite increased advocacy from regulatory bodies promoting frequent dividend distributions, the actual influence of these dividends on the market's dynamics is limitedThe low morale of the stock market is a multifaceted issue, requiring holistic solutions rather than simple fixes that hinge on cash dividends.

Moreover, while cash dividends do introduce some incremental funds into the market, the actual impact is comparatively minimal

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For instance, the 160 billion yuan in anticipated dividends represents a fraction of true market liquidity, with a considerable portion flowing to major shareholders rather than into the wider marketTake the Industrial and Commercial Bank of China (ICBC) as an illustration; with state shareholders holding an impressive 87% stake, much of the benefit from dividend payouts is unlikely to trickle down to the retail investors driving market participation.

Additionally, the existing market mechanisms and tax policies further compound the situationAlthough cash dividends might seem appealing, the realities of taxation dilute their effectiveness as a confidence booster for investorsUnder current regulations, dividend payouts often require a tax deduction, complicating the net benefits for retail investors, who face increasing tax liabilities alongside growing dividend amountsIn effect, this means that instead of enriching investors, cash dividends may lead to further financial erosion.

To truly reignite investor enthusiasm, it's imperative that policymakers reconsider the taxation framework surrounding cash dividends