High yields and big scale: why you should be excited to invest in Asia

23 October 2019

Asia is now one of the highest yielding and largest sources of dividends in the world

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Asia conjures up different images for each of us – whether it’s the Great Wall of China or the modern cityscape of Hong Kong. Or, if you’ve been lucky enough to holiday there, a white, sandy beach in Thailand.

It’s a diverse region, consisting of 48 countries that are home to almost 60% of the world’s population.

To put this into context, Europe is home to just under 10%. Not only is the population large, but its middle class is also growing – and with it, its ability to spend.

To give you another ‘wow’ fact, Alibaba’s 2018 ‘Singles Day’ sales last November attracted more money in less than 10 minutes than Amazon’s Prime Day sales altogether.

Investment opportunities

There are also thousands of investment opportunities: 17,912 companies are listed in Asia – more than in the US, UK and Europe combined.

As Asia also has 1.9 billion mobile internet users, e-commerce is a particular area that has opportunities, according to the investment team behind Matthews Asia Pacific Tiger.

They said recently: “The present growth trends and adoption of e-commerce in Southeast Asia are reminiscent of the United States in 1997. In that year, a young American company called Amazon.com reported sales growth of more than 800%.

"Two decades on, Amazon’s growth story has become well-known and e-commerce has become a significant part of the US retail economy.”

Another growing trend in Asia is dividend income. You would be forgiven for asking why Asian companies want to pay ‘boring dividends’ when it is such a vibrant and exciting growth area.

But the region has actually experienced the world’s strongest dividend growth since 2009, thanks to rising profits and expanding payout ratios.

Another plus is, while the UK stock market relies on just five companies (Royal Dutch Shell, BHP Group, AstraZeneca, BP and Vodafone) for half its dividends, the Asian stock market has 50 companies accounting for half the total dividends – again offering more choice and diversification.

As Edmund Harriss, co-manager of Guinness Asian Equity Income fund, told me: “Over the past 15 years, the income landscape in Asia has changed substantially and today it is one of the highest yielding and largest sources of dividends in the world.

"Many companies are cash-generative and mature and have the money to return to shareholders. It’s not just about Australia and New Zealand any more – Chinese, Taiwanese and Malaysian companies are also big contributors, and dividends are paid by businesses in many different sectors.”

Not all plain sailing

Despite these impressive figures, this thriving region has failed to excite investors in recent years.

But this is why it excites us. We don’t expect an investment there to be plain sailing: the ongoing tit-for-tat trade war between China and the US is a concern because it is dragging on corporate confidence, investment and growth.

However, as I have said, Asia is a big place and within it are a number of more domestic-oriented economies that should feel the impact less – Indonesia, the Philippines and India, for example.

Thailand also has the capacity for economic stimulus should it be necessary. And while Singapore and Malaysia are the most exposed to global turbulence, they
do have some defensive characteristics.

The volatility of the Asian stock markets can also put off some investors. For example, last year the Chinese stock market fell 13.5% and the Korean stock market fell 19.2%. But the year before they were up 54.3% and 47.8% respectively.

These big moves up and down can be too much for the more risk-averse, but with those willing to ride out the highs and lows over the long-term, this volatility also allows active fund managers to pick up some bargains.

Anthony Srom, manager of Fidelity Asia Pacific Opportunities fund, commented recently: “The last 12 months or so have been a particularly volatile period for Asia’s markets. While this has been a tricky period to navigate, this environment has offered stock-picking opportunities amid periods of indiscriminate selling.”

Anthony has taken advantage of market falls to invest in companies at a better price – several domestic-facing Chinese companies, for example, moving the fund from an underweight position in China a year ago, to an overweight position today. 

The sheer scale of Asia’s growing influence in the world is undeniable. Perhaps we should rethink the region’s potential to influence our investment portfolios.  

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views and those of the investment professionals quoted are their own and do not constitute financial advice.