Mapping out an income journey as the winds change
We share our ideas on how to navigate an income journey as market conditions change.
Sports-utility vehicles (SUVs) are becoming increasingly popular on the road in Hong Kong. A key characteristic of SUVs is the ability to navigate different terrains, rain or shine.
Like switching gears when driving an SUV on paved or uneven roads, investors, depending on their investment objectives and risk appetite, could go across different markets and sectors to seek out value, quality-at-reasonable-yield (QARY) and defensive, or bond-proxy, opportunities in an Asian equity dividend portfolio1.
Why we see opportunities in Asian dividend-paying stocks?
Asian dividend-paying stocks are back in the spotlight as corporates in the region are supported by relatively attractive valuations and corporate earnings growth amid the continued reopening of economies.
As illustrated below, Asia Pacific, excluding Japan, is currently the region with the most number of companies yielding greater than 3%.
Asia is a fertile ground of equity income opportunities2
Some may see Asian dividend-paying stocks less attractive versus the broader equity market in Asia if they only look at return performance. Yet, Asian dividend-paying stocks, as illustrated below3, are presenting a relatively attractive return and risk profile riding on a stronger earnings momentum.
Risk and return profile
How we find opportunities with a multiple-gear approach?
To tackle the different road conditions, SUVs have multiple gears, alongside specific components such as an anti-rollover mechanism, side airbags and sturdy brakes to help ensure a comfortable drive over a long journey.
Similarly, when seeking Asian income opportunities in a diversified portfolio, we keep in mind multiple gears, including:
Value: some sectors such as banking and insurance currently present value as they stand to benefit from a rising interest rate environment, particularly in developed markets in Asia such as Hong Kong and Singapore.
QARY: In addition to consistent dividend-paying opportunities, some quality Asian technology and consumer companies with reasonable valuations may also present growth opportunities. For example, we see growth opportunities in the Chinese furniture industry which could potentially benefit from a recovery in the property market when more supportive measures are being rolled out.
Defensives: real estate investment trusts, as well as companies in sectors such as telecommunication and utility companies, can behave as bond proxies in a portfolio, presenting consistent dividend-paying opportunities.
We believe Asia is more than a growth story. Asian dividend-paying stocks are back in the spotlight as rising vaccinations bode well for economic reopenings in the region, creating a supportive environment for corporate earnings and dividend growth.