In the current uncertain market environments, dividend-paying equities are top of mind for some investors as they present opportunities for income to help manage risk and buffer volatility while still providing potential for capital growth. We believe that Asia can be a fertile ground for a dividend-paying portfolio. Our Asia Equity income strategy is well-positioned to source income from value, quality and defensive equities across the region.

Asian dividend-paying stocks have taken the lead

Dividend-paying stocks represented by the MSCI All-Country Asia ex Japan High Dividend Yield Index have outperformed the broad Asian markets this year, as of 31 October¹. This is due to the consistent dividend payouts, value characteristics and defensive nature for many of these companies. Asian dividend-paying stocks also exhibited relatively lower annualised volatility over the 3-, 5- and 10-year periods¹.

As illustrated below, there are more companies in Asia which pay dividends of 4% or more, than other markets such as the US, Europe and other major markets².

2. Source: FactSet, MSCI, J.P. Morgan Asset Management, data as of 30.09.2022. Positive distribution yield does not imply positive return. Dividend rate is not guaranteed. Past performance is not indicative of future performance.

 

Where we see opportunities in Asian dividend-paying equities

Even though concerns over further rate hikes and a slowing global economy still prevail, we believe some key drivers may be positive for Asian markets.

• Asia’s reopening. Compared with the US and Europe, some Asian economies have only recently started to reopen their borders. Pent-up demand is rising in the region, and this may partially offset the ripple effect caused by the economic slowdowns in the US and Europe.
  
  
• Greater growth potential in emerging Asia. We expect economic cycle in the next few quarters will likely shift in favour of growth in emerging markets within the region. We see opportunities in Southeast Asia as growing domestic consumption and an improving current account position will support growth and add resiliency as the region reopens.
  
  
• Rising rates favour financials. With rates looking to normalise in the US, some Asian central banks have already raised interest rates pre-emptively. This supports banks and other financials, many of which are consistent dividend-paying equities in Asia.

Within Asia, we see opportunities across the financials, consumer staples and real estate sector. At a market level, developed markets such as Australia, Hong Kong and Singapore also present relatively attractive yields for income investors.

How we are positioning for our Asia Equity income strategy

In our Asia equity income strategy, we have dynamically adjusted our geographical and sector allocation to respond to near term market dynamics, while staying true to our objective to focus on consistent income. We have been positioning some capital to Indonesia and Singapore to reflect our investment ideas within Southeast Asia³.

We see opportunities in Southeast Asian banks as they not only benefit from a raising rate environment, but also longer term structural opportunities driven by the relatively low penetration of banking services in the region. Elsewhere in the region, we see banks and financials in Hong Kong, South Korea and Australia are showing improving fundamentals with compelling valuations . We have been increasing our allocation into financials since early 2022, and the sector is the largest overweight in our Asia equity income strategies. Given the strong sector performance, financials have been the largest contributor to relative performance year-to-date³.

Looking ahead, we will continue to diversify our Asia equity income strategy across income paying defensives and value cyclicals which exhibit quality characteristics. We believe such strategy could help investors navigate through different market environments and buffer macro uncertainty.
 

Conclusion

Asian markets have been volatile through 2022 but we believe both near and long term drivers of performance are apparent for the region. In the near term, Asia’s reopening will be key pillar of support, while the longer term structural growth story remains intact. We believe that income investing may provide a good way for investors to gain exposure into the region during an environment of macro uncertainty.

Provided for information only based on market conditions as of date of publication, not to be construed as offer, research or investment recommendation or advice. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations, may or may not come to pass. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.

Diversification does not guarantee investment return and does not eliminate the risk of loss. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

1. Source: MSCI, data as of 31.10.2022. Overall Asian stocks represented by MSCI AC Asia ex Japan Index. Indices do not include fees or operating expenses and are not available for actual investment. Past performance is not a reliable indicator of current and future results.
3. Source: J.P. Morgan Asset Management, as of 31.10.2022. 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. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.

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.