A spate of Asian income fund launches at the end of 2005 is switching investor attention to the yiel...
A spate of Asian income fund launches at the end of 2005 is switching investor attention to the yield on offer in the region.
Aberdeen, Schroders and Newton are among the groups that brought out products last year but research from UBS suggests it is not just Asia ex Japan that has a good yield story to tell.
While it predicts a 3.7% yield for the region in 2006 with dividend cover of 2.3 times, it also predicts 4.1% for Latin America with cover of 2.8 times.
This compares with the lower yields of 2% in the US and 1.2% for Japan. However, each country a has higher dividend cover at 3.4 times and 5.0 times respectively, suggesting plenty of scope for dividend rises.
When it comes to Japan, the majority of managers suggest the economic and corporate outlook really is different this time after all the false starts seen in the 1990s.
Barings' head of Japanese equities Joji Maki's confidence is evident by his decision to build up exposure to real estate and banking. These are areas just a few years ago perceived as black holes rather than investment opportunities.
David Mitchinson, manager of the JP Morgan Japan fund, sees signs of domestic private investors returning to the markets as employment picks up and much needed inflation begins to emerge.
"We think this macroeconomic revival is going to be long lasting," he says.
Threadneedle's chief investment officer Sarah Arkle predicts inflation will start to appear in the second half of 2006 and accelerate in 2007, at which point she expects "to see a return to positive but very low interest rates."
Despite all the good news already in the market, Maki is convinced there is more upside to come from the market, not least because he thinks earnings can come in ahead of expectations.
"Share price valuations are still at attractive levels and foreign investors are turning into net buyers once again," he adds.
Senior manager of the Legg Mason Asia Pacific fund Ray Prasad is another manager backing a market to continue its 2005 success into 2006. In his case it is South Korea, which rose some 58% in sterling terms in the year to the start of December 2005, beating even India's 42% gain over the same period.
He says: "We believe stocks are still trading at an unjustifiable valuation discount, with the ongoing structural change in South Korea suggesting a very positive outlook in the years ahead."
Changes he cites include low interest rates, encouraging Korean investors out of fixed income and deposits and into equities, alongside of government moves to cool down the real estate market, a traditional resting place for domestic investments.
Hugh Young, manager of the Aberdeen Asia Income fund, argues firms in the region have restructured since the regional crisis of the late 1990s and are not only strong but more attuned to shareholders and the importance of dividend payouts.
Jason Pidcock, manager of Newton Asian Income, says the increasing maturity of Asian markets and rising pension fund investment has helped emphasise the need for regular income payments from stocks.
While Prasad is a particular fan of South Korea, he sees China and India as the key economies for the region's health in the future.
He adds: "The favourable demographics in China and India are reminiscent of those during North America's baby boom in the 1950s and 1960s. The rest of Asia looks set to benefit from the burgeoning demand for goods and services in China and India."
High dividend yields from Asia and emerging markets.
Japan has excellent dividend cover.
Inflation forecast to break out in Japan in H2 this year.
The forces at play in investment - most obviously, regulatory change, uncertain markets and shifting demographics - are as strong today as they were when Professional Adviser launched its sister magazine Multi-Asset Review in 2017.
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