Trustnet Magazine Issue 21 September 2016 | Page 16

EASTERN PROMISE
Mike Kerley of Henderson Far East Income Ltd says the scramble
for dividends in Asia is just getting started

I

N THE WEST, THE
GRASP FOR YIELD
HAS BECOME A
PROTRACTED
THEME FOR
INVESTORS. Income hungry, they
have been forced to search in
non-traditional income asset classes
amid compressing bond yields from
expansionary central bank policies.
The UK government now rewards
you with a mere 0.6 per cent a year if
you lend to it for 10 years. In
Germany you’ll need to pay the
government to take your money. As
the risk-reward dynamic has
become skewed, income-yielding
equities have never been more
en-vogue. But what of the more
traditionally high yielding markets
such as those in Asia?
In the past, heavyweight Asian
investors such as large pension
14

and sovereign wealth funds tended
to allocate their cash towards
fixed income assets and property.
This made sense. With yields
significantly higher than in western
markets, exposure to the additional
capital risk in equities would have
been nonsensical.
Recent evidence points to a
shifting landscape in this regard.
Look at data from the region’s
stalwart economy – China (see
chart) – and you’ll see yields have
been steadily dropping across a
number of income asset classes:
government bonds, corporate
bonds, property and even wealth
management products. The latter
offer fixed-term pay-outs based
on underlying assets and have
been hugely popular among retail
investors. Some of the non-bank
wealth management products

(WMP) offered fairly high (and
unsustainable) yields in the
past due to the spurious assets
underpinning them and are now
facing a government clampdown.
Similar products sponsored by
banks are deemed safer, but yields
have contracted to below 4 per
cent – lower than that of the main
H-Shares equity market in Hong
Kong (HSCEI) and a growing
number of shares listed in Shanghai
and Shenzhen, China – making
them far less compelling than they
were 12 months ago.
Overall, the effect has been
to squeeze all of the traditional
avenues for income, making
equity yields – rising on account
of the improving corporate
attitudes towards shareholders
and increasing pay-out ratios (the
percentage of net income paid out
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