Asian equities are becoming increasingly attractive on dividend yield grounds, an as yet unrecognise...
Asian equities are becoming increasingly attractive on dividend yield grounds, an as yet unrecognised story in the region.
Adam Matthews, product manager at JP Morgan Fleming, said: 'It is strange to talk about 6% dividend yields as we were previously growth fund managers and Asia is a growth market, but we are in a different time and Asia is attractive for yields from stable businesses.
'Asian index dividend yields are about 2.3%-2.5%. We could get 4% on the FTSE 100 but the thing about Asian dividends is that the absolute payout has risen as well. Asia ex-Japan will pay out $35bn this year, up 66% since 1999.'
Matthews said this relates to modest improvements in corporate governance attitudes as management realises a share price does better if it pays out dividends.
Of the top 450 Asian companies, 37% have yields above 3%, Matthews said.
'In Asia, we have a very sustainable dividend payout ratio,' he said.
Hang Seng Bank is one of the fund's best performers this year. 'The shares have flatlined but it is paying a dividend of 6%,' Matthews added.
According to Matthews, all of the arguments about growth rates and the impact of a US recovery remain true but, in Asia, investors get top yields as well. So, even in a dire market, some interesting opportunities can be found.
'As an asset allocation play, Asia has outperformed this year,' he said. 'All the outperformance came in the first five months of the year. Since then, it has performed in line with the US and UK.'
Matthews argued improving returns on equity from Asian companies should mean a higher rating.
'This would justify higher Asian share valuations than a year ago as investors will receive better returns on their investment than in recent years,' he said.
However, Matthews conceded that return on equity is not a good indicator of share prices and that RoE valuations said the same thing six months ago.
He added that Asian companies should be at a discount.
'Unlike the US, there is no surprise factor when an Asian company says it has not been telling the truth,' he said.
'There is a strong qualitative element in choosing stocks. Do you believe them or not?'
A price to book ratio in Asia of half the US value is too high, he continued, especially as reforms are proceeding at a reasonable pace. Meanwhile, the Asian bull story, if US tech spending recovers Asia will be a beneficiary, remains a given.
The corporate side has seen restructuring, falling gearing and Ebitda rising, Matthews said.
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