Asia in a sweet spot for investment income
HONG KONG, 9 January 2013 – Asia equities and bonds will offer unique investment opportunities for income seekers in 2013 amid subdued global economic growth and further quantitative easing, says Fidelity Worldwide Investment.
Matthew Sutherland, Senior Investment Director for Equities at Fidelity Worldwide Investment, said, “2013 will be a year to focus on sustainability and growth of income, particularly in Asia where dividend yields are attractive compared with the rest of the world.
“Asia is in a dividend sweet spot since cash flows are growing together with falling capital expenditure and gearing levels. High-dividend stocks within Asia Pacific ex-Japan have provided superior returns relative to their regional peers, delivering a total return of 550% since 2000, with about 57% of that total return contributed by dividends,” he said.
Commenting on the overall equity market in 2013, Mr. Sutherland said, “Equity valuations are cheap relative to history and have room to rise especially with further monetary stimulus globally, which can trigger an upwards re-rating. Earnings growth will moderate while global gross domestic product (GDP) growth remains at anaemic levels. However, we believe Asia will continue to outperform with the highest expected growth of real GDP and earnings per share (EPS).”
Equity markets in 2013 are likely to be event-driven with much depending on policy makers and central bankers to make the right decisions. The fiscal issue in the US, possible uncontrolled exits from the Euro-zone, the speed of reform and political stability in China as well as the geopolitical situation in the Middle East are the key issues in 2013.
“While the growth in China is slowing down, the trend is bottoming with some upside expected in the year ahead. The authorities have already responded accordingly and a sharp slowdown is not expected. The economic reform in China, especially relating to the trend of urbanization, will open up lots of opportunities in the consumer sectors,” Mr. Sutherland said.
Looking at the traditional port of call for income, the fixed income market will continue to attract investors this year amid a search for low-volatility assets. However, with demand for safe haven assets pushing core government bond yields to record lows, investors are looking further afield for income opportunities.
“Investment grade and high-yield bonds remain underpinned by solid credit fundamentals. Asia will continue to attract interest as Asian corporate fundamentals remain resilient and its real GDP growth is forecasted to remain ahead of the developed markets,” said Gregor Carle, Investment Director for Fixed Income at Fidelity Worldwide Investment. “However, given the strong rally last year, the return expectations of Asian bonds ought to be moderated for 2013.”
“We believe corporate bonds will continue to offer a compelling risk/return profile but taking current valuations into consideration, investors need to be prepared to accept lower returns in higher yielding assets than they have seen in 2012 and possibly allocate more of their assets into lower risk offerings, such as investment grade bonds. The balance sheets of investment grade credits are robust and spreads are attractive although there are some early signs that some companies are becoming more shareholder-focused,” Mr. Carle said.
“Emerging market bonds are also attractive for investors who are willing to take on more risk in search of higher real yields. Persistent improvement in global business sentiment could benefit emerging market debt - particularly local currencies,” Mr. Carle said.
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About Fidelity Worldwide Investment
Fidelity Worldwide Investment is one of the global leaders in asset management, providing investment products and services to individuals and institutions in the UK, continental Europe, the Middle East and Asia Pacific. Established in 1969, the company has over 5,000 staff in 24 countries and manages or administers client assets of US$289.4bn. It has over 7 million customer holdings and manages around 700 equity, fixed income, property and asset allocation funds. The company’s fund managers receive research from one of the largest proprietary research teams, based in 12 countries around the world. Fidelity Worldwide Investment is an independent asset management company which is privately owned.
Data as at 30 September 2012
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