ASEAN is big … and getting bigger in portfolios?
We share the key themes that are driving equity investment opportunities in ASEAN.
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.
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.
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.
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.