Dividend growth in Asia 'encouraging'

An electronic board showing stock information at a brokerage in Hangzhou, Zhejiang province, last Tuesday. China shares listed in Hong Kong have been belted, given Beijing’s unexpected decision to devalue the yuan.
An electronic board showing stock information at a brokerage in Hangzhou, Zhejiang province, last Tuesday. China shares listed in Hong Kong have been belted, given Beijing’s unexpected decision to devalue the yuan. PHOTO: REUTERS

Firms' underlying dividend up 9.5% in Q2; region offers pockets of opportunity even as investors pull out: Analysts

Underlying dividend growth will stay strong over the longer term in the Asia-Pacific despite the market corrections going on now, according to asset manager Henderson Global Investors.

The firm noted in a report this week that underlying dividends paid out by companies in the region, excluding Japan, rose an "encouraging" 9.5 per cent in the second quarter over the same period a year ago.

Underlying dividends "strip out currency movement, the effect of index changes, the timing effect that occurs when companies move a payment from one quarter to another, and special dividends", according to Henderson.

When those factors are left in the equation, the picture is different, with annual dividends in the region tumbling 24 per cent to US$29.8 billion (S$41.2 billion) in the second quarter, owing to large one-off factors in Hong Kong.

The United States "remains the engine of global dividend growth", with a 10 per cent jump in dividends, delivering the sixth consecutive quarter of double-digit increases, said the study.

Mr Sat Duhra, manager of the Henderson Horizon Asian Dividend Income Fund, told The Sunday Times that China shares listed in Hong Kong have been belted, given the unexpected currency devaluation in China on the back of lower growth expectations. That and the weakening macro-economic data and upcoming rise in US interest rates have "all combined to make investors risk-averse", hitting the overall performance of Asia-Pacific region, he added.

Still, Mr Duhra remains positive about the outlook in the region and expects underlying dividends to grow further. "Corporates that hold record cash balances, generate strong free cash flow and operational performance are benefiting from lower commodity and labour inputs, alongside a very serious reform agenda across the region," he said, citing countries such as India, Indonesia and China.

"In addition, investors and governments continue to spur companies into increasing dividend payouts from some of the lowest levels globally. This has been very apparent in Korea and is a theme that continues to gather pace in the region."

Focusing on dividend growth offers investors an opportunity to get a slice of the region's structural growth - a strategy "which should outperform through the cycle and not just in times of low bond yields", noted Mr Duhra.

"In the current environment, a strategy that combines defensive qualities with the aim of capturing long-term growth prospects is key; we believe dividend growth is the answer. After all, this is one of the key reasons to invest in the region given anaemic growth elsewhere."

Mr Duhra added that the region's fundamental economic strength remains solid, although the near-term prospects are not likely to be offer investors a smooth ride as external events continue to exert pressure.

Separately, Mr Manish Nigam, Credit Suisse deputy director of research Asia, believes there are pockets of opportunity in Asia for investors even now, as regional markets are pulling back.

Its Asia ex-Japan Focus List (AxJ Focus List), for instance, aimed at helping investors pick the best equities, has generated 19.3 per cent total return since it was launched in mid-April last year. This also means the list has outperformed the benchmark MSCI Asia ex-Japan Index by 20.9 per cent since the launch.

The current portfolio of the AxJ Focus List comprises 17 top-buy ideas from the over 1,000 stocks Credit Suisse covers in Asia.

The top five performers as at the end of last month were Lotte Chemical, HCL Technologies, HDFC Bank, Xinjiang Goldwind Science & Technology and Sands China.

Mr Nigam said the portfolio includes a sizeable number of stocks from India, reflecting the dynamics of the market there.

It lists only two stocks from South-east Asia, "reflecting our conservative view on the prospects for most of these markets". He also said the portfolio hardly includes exposure to the commodity-oriented sectors, in line with Credit Suisse's bearish stance on the sector.

"This is a highly concentrated list with a small number of stocks that have strong fundamentals and highest conviction," said Mr Nigam, adding that all of the stocks on the list meet a minimum liquidity and market capitalisation requirement.

A version of this article appeared in the print edition of The Sunday Times on August 23, 2015, with the headline 'Dividend growth in Asia 'encouraging''. Print Edition | Subscribe