Kames Capital’s top five Asian equity picks for income

While historically, global income funds had limited exposure to Asia, in recent years the situation has changed, Kames Capital has said. Firstly, Asia continues to rise as a percentage of the world’s indices, reflecting the fact that the majority of the world’s population lives there and the economies are growing faster than the rest of the world. Secondly, Asian companies are now more liquid and are returning more cash to shareholders, making the region more suitable for income funds.
Robin Black, support manager on the Kames Global Equity Income Fund, notes the dividend yield of 2.6% in the Asia Pacific region is higher than the average global yield of 2.4%, and is far in excess of the US market, which yields just 1.9%.
“Aside from the yields being higher, the dividends are also growing faster. This is partially due to a change in attitudes, but it also reflects the cash generative qualities of some of Asia’s more successful businesses,” Black said.
Black looks for profitable companies with safe balance sheets, sustainable cash flow, and a willingness to return excess cash to shareholders. “We already have a higher proportion of the fund invested in Asia (excluding Japan) than we do in Europe (excluding UK), and the region will inevitably continue to grow in importance for income investors.”
Below, Black identifies five standout stocks which offer attractive yields to investors in excess of the US market.
TSMC “The Taiwanese tech giant, which has been in the fund since it launched over five years ago, is the world’s leading foundry (semiconductor manufacturer). It is exposed to many growth areas, such as artificial intelligence, data storage and crypto currencies so there are some good tail winds to their business. Its technological lead compared to the competition is significant – they produce more semiconductors, with more consistency and at more precise measurements than anyone else is able to, and that’s why they are a core supplier to companies like Apple.”
Macquarie Group “One of the interesting features of Australian financial Macquarie is how it has changed its business model. We’d never have bought Macquarie as an income stock a decade ago, as it was far too cyclical and it rose and fell at the whims of exogenous factors. Now, the majority of its businesses are more annuity style (for example, they are large players in infrastructure), which gives the company far more stable earnings.”
PTT “Thai integrated oil conglomerate, PTT, is a more unusual holding for a global income fund. It’s seen as a company with very close links to the government and that can be a double-edged sword, but the discount the market ascribed to that fact was disproportionate, creating a valuation discount we were able to exploit. We like its integrated model, as it is upstream in oil and gas, but it also refines and makes petro-chemicals and markets the products.”
Anta “With a population of 1.4 billion, no one can doubt the importance of Chinese consumption as a theme, and Anta, the Chinese sportswear company, is one route to reach them. In a country which has been slow to develop credible home brands able to challenge the global giants it’s refreshing to see the success of Anta which is challenging Nike and Adidas and is thriving. Consequently they’ve been able to double their dividend in the past two years.”
DBS “Singaporean financial DBS is seen as a safe and steady financial within the region – it is well capitalised, has multiple revenue streams, and it returns 50% of its earnings to shareholders. Often investing in Asia is about avoiding the booby traps so although DBS grows its loan book slower than the banks in China, India and SE Asia, we actually see that as a positive.”