Asian equities represent an opportunity for long term investors to benefit from a dynamic of growing streams and a bigger potential increase in dividend income, according to a research paper by Maple-Brown Abbott.
The Asia ex-Japan region offered a combination of recovering earnings streams, strong balance sheets, growing free cash flow yields, modest prevailing dividend payout ratio and supportive valuations, the study found.
However, despite of the Asia ex-Japan region including China A-Shares having listed stocks with a market capitalisation greater than US$1 billion, it was still underrepresented by its weighting in the MSCI AC World Index.
Geoff Bazzan, head of maple-Brown Abbott’s Asia Pacific equities team on Asian equities and an author of the study, stressed that the importance of dividend income to total long-term returns could not be ignored and that in Asia, as well as anywhere else in the world, the long-term return from equities was evenly shared between income and capital growth.
“High yield strategies on their own are not necessarily a successful strategy, with the highest yielding sectors in Asia ex-Japan typically underperforming the broader market of that region over the long term with scant statistical evidence to support its relevance as a single factor strategy,” he said.
Also, according to him, Asia ex-Japan region would offer investors exposure to upside in dividend growth thanks to a recovering earnings trajectory and a willingness to accept an increasing payout profile.
“Strong balance sheets, an improving earnings outlook combined with a modest but growing ratio are important factors in providing increased confidence to boards across the region to enhance dividend returns to shareholders,” Bazzan concluded.
Maple-Brown has been managing Asia Pacific equities strategies since 2002 which includes:
- Asian Investment Trust
- Asia Pacific Trust
- Australia Plus Asia Trust
