The potential growth for Asia’s technology sector is as compelling as its US equivalent, but unlike the US tech giants, it is a natural option for income investors. TenCent has been paying a dividend since 2004 and has doubled its payout ratio (11–25%) over the past 12 months.1 TSMC has a relatively low starting yield but has been paying a yearly rising dollar dividend per share for the past five years.2
These companies have been a bellwether for a broader change in corporate Asia, one that US companies are only waking up to.
To some extent, these companies have been a bellwether for a broader change in corporate Asia, one that US companies are only waking up to. We see this across the region, with cash-generative Asian companies returning profits to shareholders via dividends. Many Asia-Pacific ex-Japan benchmark companies are now yielding more than 3%.2
Sharing earnings with shareholders
Regional management teams recognize that they need to share their earnings with shareholders to attract foreign capital into their equity register. This is part of a broader improvement in governance and an intense focus on delivering shareholder value.
Government initiatives have encouraged these initiatives. The Chinese government, for example, enacted a series of measures in 2023, changing how it evaluates managers' performance at state-owned entities from net profits to return on equity. The Korean government has also launched a ‘value up’ initiative to address the ‘Korea discount’ in several stocks. Although the execution of these initiatives has been flawed in some cases, it is, at least, an important statement of intent.
In Asia, dividend investors are not limited to dull, low-growth areas such as energy and mining but can access various opportunities.
This ensures that a dividend investor in Asia has a breadth of choice. Generating dividends from technology hardware plugged into the artificial intelligence trend or infrastructure companies with a stake in the energy transition is possible. Consumer companies benefit from a new middle class with rising wealth, while the financial sector is helping people preserve that wealth through savings and insurance products. In Asia, dividend investors are not limited to dull, low-growth areas such as energy and mining but can access various opportunities.
Asia’s rapid growth
This diversity is just one of the reasons to look to the Asian market for dividends. Economic growth is also essential. Asia is now the most crucial growth engine for the global economy. Emerging markets, which consist of Emerging Asian countries, have become a powerhouse of the global economy. They are projected to contribute around 59% of the total world GDP (Chart 1), creating a favorable environment for companies to increase their dividends and share prices.1
Chart 1. Emerging markets contribute to nearly 60% of global growth
The International Monetary Fund forecasts growth of 4.5% for Asia in 2024 and another 4.3% in 2025. This is more than double the projections for advanced economies (1.6% and 1.8%, respectively). It is also higher than other regions and emerging market areas. Perhaps more importantly, that growth comes without an inflationary sting in the tail.
Asia has some clear advantages in achieving these growth levels. It has demographic tailwinds, with young, urbanizing populations in India and Indonesia. A growing, educated middle class is increasingly driving growth and economic opportunity across the region.
The dragon in the room
The problems in China have been a significant deterrent for many Asian investors. Equity income investors have held relatively little in China because there isn’t the same dividend opportunity. This changes over time, and some opportunities have been difficult to ignore. While remaining cautious and selective, we believe the outlook for the Chinese economy is improving, and some fast-growing, well-run companies are now trading on attractive valuations.
Many of the political risks that existed at the start of the year have passed. The most significant risks are now likely to come from outside. The US election will impact the region, with a new president potentially changing trade policy or sanctions with China.
Final thoughts
We believe there will be repercussions across Asia, both good and bad. Some markets could benefit should there be stricter policies against China – Malaysia, for example, is attracting a more significant share of global manufacturing, as are Vietnam and Thailand. Korea could benefit if there’s a squeeze in Taiwan. These are all risks that we keep a close watch over.
In the meantime, the opportunity set for income investors in Asia continues to expand.
1 Tencent Holdings Dividend Information. Stock Analysis, July 2022. https://stockanalysis.com/stocks/tcehy/dividend/.
2 "TSMC tops quarterly expectations with 40% revenue growth." Silicon Angle, July 2024. https://siliconangle.com/2024/07/18/tsmc-tops-quarterly-expectations-40-revenue-growth/.
3 "What’s the ‘Korea Discount’ and Why Is It a Problem?' Bloomberg, March 2024. https://www.bloomberg.com/news/articles/2024-03-06/south-korean-stocks-what-is-the-korea-discount-and-why-is-it-a-problem.
Important information
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
Dividends are not guaranteed and a company’s future ability to pay dividends may be limited.
Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed, and actual events or results may differ materially.
Foreign securities are more volatile, harder to price, and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
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