Mapping out an income journey as the winds change
We share our ideas on how to navigate an income journey as market conditions change.
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Key takeaways:
- We believe Asia is more than a growth story. It is also home to a wide range of companies, presenting attractive dividend opportunities1.
- With the start of the US interest rate hiking cycle, and even amid heightened market volatility from geopolitical conflicts, some Asian equities are presenting income opportunities1, supported by relatively attractive valuations and corporate earnings growth.
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
2. Source: FactSet, MSCI, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.12.2021.
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
3. Source: Bloomberg, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results. Indices do not include fees or operating expenses and are not available for actual investment. Data reflect most recently available as of 31.12.2021. For illustrative purposes only. Opinions, estimates, forecasts, projections and statements of financial market trends are based on market conditions at the date of the publication, constitute our judgment and are subject to change without notice. There can be no guarantee they will be met.
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.
Conclusion
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.
Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice.
Yield is not guaranteed. Positive yield does not imply positive return. Diversification does not guarantee investment return and does not eliminate the risk of loss.
1. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions. Yield is not guaranteed. Positive yield does not imply positive return.
Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current and future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.
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