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