Asia's High Dividend Stocks Start to Lose Their Appeal
Asia's High Dividend Stocks Start to Lose Their Appeal
(Bloomberg) -- It seems Asia investors on the hunt for yield are beginning to worry about not coming away with the spoils.
After beating the benchmark MSCI Asia Pacific Index in the first half of the year, a basket of its top 100 members by dividend yield has underperformed since, according to Bloomberg-compiled data. A combination of concerns about the prospects for Asia’s high yield firms as well as extended valuations has turned investors wary of the dividend chasing strategy, according to market participants.
“The fact that investors are now reducing their exposure to high-paying dividend stocks, despite a forecast for looser monetary policy, reflects the new consensus that economic growth and therefore earnings will slow down for these companies,” said Olivier d’Assier, head of applied research at Axioma Asia Pte Ltd. “The global de-risking that is going on is also forcing investors to reduce their exposure.”
Unlike in U.S. and Europe where dividend payers are traditionally large and stable companies in sectors like real estate and utilities, Asian high yielders come with a “warning label,” according to d’Assier. They are usually more illiquid, which makes “harvesting” the payout harder than other regions, he added.
Amid a rally in global debt, for much of the year Asia equity investors were rewarded for backing so-called bond proxies -- stocks that payed out good dividends. A custom Bloomberg News gauge of the Top 100 dividend payers gained 11.5% in the first half of 2019 versus a 9.1% gain in the MSCI Asia Pacific. Since the end of June however, the dividend basket has fallen over 4% with the regional benchmark down less than 1%.
As well as concerns over the impact of a slowing economy, valuation is another factor making investors reluctant to chase dividend plays. The valuation of Asian REITs, another example of bond proxies, hit a multi-year high at the end of August relative to the broader market.
“Some of these names have become very expensive and the last reporting season saw some stabilization in the results of cyclical companies, which led to some rotation away from yield,” said Sat Duhra, who co-manages Asian dividend income strategy at Janus Henderson Investors.
Still, that doesn’t mean investors’ preference for dividend stocks has hit a wall, as the demand for income remains strong in a region where nearly every central bank has been cutting interest rates, Duhra added. Bond-proxies can continue to perform as rates will likely be cut further, he said.
The average total return in the top 100 basket is about 13% year-to-date, versus an 11% gain the the MSCI AC Asia Pacific Total Return Index.
For Daryl Goh, head of Asia equity advisory at Citi Private Bank, the search for yield will continue, though investors will become more discerning, focusing on less-leveraged property stocks or consumer brands and more on growth that is less correlated to the cycle.
“The turn in the dividend yield factor is more of a reflection of growing fears over Asian and global growth rather than reflecting the preference for dividends, which actually is more in favor now,” he said. “Investors are going to focus on quality sources of dividends.”
--With assistance from Fox Hu.
To contact the reporters on this story: Moxy Ying in Hong Kong at yying13@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Cormac Mullen
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