DIY Investor Magazine
/
September 2016
16
THE SCRAMBLE FOR DIVIDENDS IN
ASIA IS JUST GETTING STARTED
Henderson Far East Income Ltd
In the West the grasp for yield has become a protracted
theme for investors. Income hungry, they have been
forced to search in non-traditional income asset classes
amid compressing bond yields from expansionary
central bank policies.
The UK government now rewards you a mere 0.6% a
year if you lend to them for 10 years. In Germany you’ll
need to pay them to take your money. As the risk-
reward dynamic has become skewed, income-yielding
equities have never been more en-vogue.
But what of the more traditionally high yielding markets
such as those in Asia?
In the past, heavyweight Asian investors such as large
pension funds and sovereign wealth funds have tended
to allocate their cash towards fixed income assets and
property. This made sense. With yields significantly
higher than Western markets, exposure to the additional
capital risk in equities would have been nonsensical.
Recent evidence points to a shifting landscape in this
regard. Look at data from the region’s stalwart economy
– China (see chart below) – and you’ll see yields have
been steadily dropping across a number of income
asset classes: government bonds, corporate bonds,
property, and even wealth management products.
The latter offer fixed-term pay-outs based on underlying
assets and have been hugely popular among retail
investors. Some of the non-bank wealth management
products (WMP) offered fairly high (and unsustainable)
yields in the past due to the spurious assets
underpinning them, and are now facing a government
clampdown.
Similar products sponsored by banks are deemed
safer, but yields have contracted to below 4% and
that of the main H-Shares equity market in Hong Kong
(HSCEI) and a growing number of shares listed in
Shanghai and Shenzhen, China - a far less compelling
proposition than 12 months ago.
Overall, the effect has been to squeeze all of the
traditional avenues for income, making equity yields –
rising on account of the improving corporate attitudes
towards shareholders and increasing pay-out ratios (the
percentage of net income paid out as dividends) – an
increasingly attractive income proposition on a risk
/ reward basis. The picture is reflected across most
Asian markets.
Source: Henderson Global Investors; Morgan Stanley: as at
17/08/2016. HSCEI – Hong Kong Seng China Enterprises Index
How are Investors Reacting?
Institutional investors, cognizant of the eroding value in
traditional income asset classes, have been changing
their allocations towards equities for the first time in
history. In Taiwan the risk-based capital requirements
for insurers and pension funds have been raised, which
could attract between $25 and $35bn towards equities
over the next five years. Singapore’s sovereign wealth
fund, GIC, is in talks to buy 7% of Vietcombank in
Vietnam. In India, the biggest retirement manager has
recently been permitted to invest 5 – 15% of new assets
in equities, where before they had not been allowed.
And the tendency has been for dividend paying
stocks with low betas – those of lower volatility when
compared with the wider market. A market-cap
weighted index of 44 Asian stocks with dividends above
3% and betas of between 0.8 - 1.0 (less than one
implies lower volatility than the market; more than one
implies greater) has been climbing, especially since the
Bank of Japan introduced negative interest rates.
