The value of dividends in emerging markets

Dividends can be attractive to investors in all markets: they inherently signal that companies are healthy and generating enough cash to be paid out to shareholders. For investors that are focused on quality and value, dividends are particularly important when looking at emerging market stocks.

In developed markets, value can be realised when a company is acquired at a premium through a merger or potentially through activist investors who convince managements to make changes that benefit shareholders. However, fewer merger and acquisition deals transact in the emerging markets, while an activist approach also faces challenges because a large number of companies are majority-owned by the state or families. Therefore, JEMI’s investment team focuses on stocks that pay dividends to find quality at attractive prices and realise value for JEMI shareholders.

Dividend focus yields a differentiated portfolio

The dividend approach results in a differentiated portfolio with a consistently high active share—positioning that is different from the benchmark — and dividend yield. The process has also generated strong long-term results: JEMI has beaten its benchmark, the MSCI Emerging Markets Index, over three, five and 10 years, and since its inception in 2010, annualised, as of 28 February 2025.

Some of JEMI’s biggest active positions highlight the many types of companies that the trust can invest in. TISCO Financial is an auto finance company in Thailand, with a strong franchise, balance sheet and dividend policy. This small company is less liquid but the trust structure allows the portfolio to take a relatively large position, contributing to JEMI’s high exposure to financial stocks, which are about a third of the portfolio.

On the other end of the spectrum, the investment team has recently been building a large position in Walmex, the Mexican retail giant, which the team has followed for a long time. The entire Mexican stock market derated last year due to a combination of domestic political changes and concerns around tariffs from the US, allowing the portfolio manager to start buying the stock at its most attractive valuation in five years. The Walmex position has boosted the portfolio’s exposure to consumer-oriented companies and made Mexico the largest country overweight in JEMI. While Mexican exposure was a headwind in 2024, it has actually contributed positively to performance in 2025, despite the tariff implications.

The portfolio’s exposure to technology stocks has come down from a double-digit active position in recent years to a small overweight currently; exposure to Taiwan has also meaningfully decreased as a result. The portfolio managers have been taking profits in many technology stocks that have outperformed and where valuations have increased; reduced exposure to technology stocks also reduces some cyclical risk that could affect earnings and dividends.

Case study: JEMI’s investments in China

The portfolio’s changing exposure in China offers a good example of JEMI’s investment process. For instance, JEMI exited a long-time position in China Construction Bank, which is now a big active underweight. The investment team believes that returns on equity (ROE) will be more challenging in the financials sector and is looking at opportunities in other industries that may offer stronger dividend growth.

Some new positions are in stocks and industries that JEMI has not previously invested in, such as Chinese internet companies Tencent and Alibaba. Alibaba is an interesting case study on JEMI’s process. The stock price declined over the past few years as investors worried about growth prospects for the Chinese economy but the investment team noticed that since 2022, the company’s free cash flow remained quite strong. The real catalyst came at the end of 2023, when Alibaba initiated its first dividend, a sign that it was maturing in terms of allocating capital and using cash to reward shareholders.

The dividend also allowed JEMI to finally own the stock and the portfolio team built a position in the middle of 2024. Since that time the stock has performed well, reflecting both the improved shareholder focus and a better environment for Chinese stocks.

Emerging market outlook: Weak US dollar vs. tariff pressure

The outlook for the global economy and stock markets is significantly less clear following the broad-based US tariff announcements and subsequent market sell-offs. Emerging markets are no exception. One interesting development is that the US dollar has fallen, which is unusual in a risk-off environment, when investors tend to flock to safe-haven currencies and assets. A weaker dollar is supportive for emerging markets and could mitigate some of the negative impact of tariffs on emerging market goods. In the meantime, the investment team is focused on managing risk and JEMI has multiple guardrails in place, including an independent risk team.

Summary Risk Indicator

The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period

Investment objective

The Company aims to provide a dividend income, together with the potential for long-term capital growth from a diversified portfolio of emerging markets investments. It is free to invest in any particular market, sector or country in the global emerging markets universe and there are no fixed limits on portfolio construction. The Company has the ability to use borrowing to gear the portfolio to up to 20% of net assets where appropriate. Gearing may magnify gains or losses experienced by the Company.

Risk profile

Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.

Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.

This Company may invest in non-investment grade bonds which increases the capital risk and may have an adverse effect on the performance of companies which invest in them.

External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.

This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.

This Company may also invest in smaller companies which may increase its risk profile.

The share price may trade at a discount to the Net Asset Value of the Company.

The Company may invest in China A-Shares through the China-Hong Kong Stock Connect program which is subject to regulatory change, quota limitations and also operational constraints which may result in increased counterparty risk.

As the portfolio is primarily focused on generating income, it may bear little resemblance to the composition of its benchmark.

This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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