INSIGHT

Citi insights into Asean wealth opportunities
INSIGHT

7 AUGUST 2017

Dividends Shine in ASEAN

By Florence Tan, Celestee Tan

Companies in the Association of South East Asian Nations (ASEAN) have been better at generating excess cash and paying dividends which translates into strong performance over the long term.

Market Performance

Global equities as measured by MSCI World Index closed higher on the week (0.54%).

In the US, the Dow Jones Industrial Average increased 1.20%, S&P 500 Index rose 0.19% and the Nasdaq Composite ticked 0.36% lower.

European equities, as measured by the Stoxx Europe 600 Index, gained 1.11% while Japanese stocks were mixed (Nikkei 225: -0.04% and Topix: 0.63%).

Emerging Markets, as measured by MSCI EM index, continued its recent run, rising 0.40%, led by MSCI Emerging Europe (1.27%), MSCI Latin America (1.18%) and MSCI Asia ex Japan (0.63%). Within Asia, the Hang Seng China Enterprises Index was the outperformer, posting a 2.30% weekly gain.

  • Compared to other companies within Asia, companies in ASEAN appear to be better at generating excess cash from their operations, even after taking in account capital investment expenses.
  • This is important as historically, this excess cash has made its way back to shareholders in the form of dividends. Indeed, compared to their peers in North Asia, companies in ASEAN have been paying out a higher proportion of their earnings in dividends. See chart.

"A basket of the highest dividend yielding stocks in ASEAN would have delivered 15.2% p.a. since 2000."

ASEAN companies pay out more dividends
  • Given investors' penchant for income, this has in turn translated into the strong performance of dividend-paying stocks over the long term. According to Citi analysts, a basket of the highest dividend yielding stocks in ASEAN would have delivered returns of 15.2% per annum since 2000. This is significantly higher than the 6% returns generated by a broad based ASEAN Index over the same period.
  • The good news does not stop there. Citi analysts believe that dividends in ASEAN have further upside. The ability of ASEAN companies to pay out dividends is closely linked to the ASEAN region’s economic growth. This is because the ASEAN market is more domestically driven with the Consumer Staples sector having the highest weighting of 24%. Given Citi analysts’ expectations of steady economic growth for the region for 2017 and 2018, this is likely to bode well for dividends going forward.

Can the Renminbi’s Strength be Sustained?

The Chinese Renminbi (RMB) hit a 10-month high of 6.7290 against the USD last week. Citi analysts expect supportive economic fundamentals and a stable policy environment to keep the RMB steady as we head towards year end.

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  • Following a record 6.5% depreciation last year, the RMB is up 3.3% year to date against the USD, defying investor expectations of further declines at the start of the year. Can the RMB’s strength be sustained?
  • Economic fundamentals likely to remain supportive. The Chinese economy grew 6.9% in the first half of the year. The faster than expected growth momentum led Citi analysts to revise up their 2017 full year GDP growth forecast to 6.8% YoY. Retail sales also accelerated in the six months of the year and domestic consumption is expected to remain resilient going into the second half of 2017. Meanwhile, Citi analysts expect CPI inflation to pick up only gradually, averaging 1.8% for the year.
  • Policy environment to become more stable. Ahead of the 19th Party Congress in early November, regulators may make more efforts to ensure the stability of the financial markets. Meanwhile, capital outflows have slowed significantly, helping to ease onshore liquidity conditions and stabilize onshore money market rates. Without obvious inflation pressures, the People’s Bank of China is unlikely to tighten.

"RMB is likely to remain steady and come under increasing pressure to appreciate modestly."

The RMB's Strength Proves More Robust Than Expected
  • Citi analysts anticipate the RMB to move within the range of 6.7-6.9 against the USD in the next five months with a bias towards greater appreciation until mid-November before potentially experiencing some softness towards the year end.
  • That said, certain external events could unsettle the RMB markets. For example, tensions remain in US-China trade, after the disagreement on steel trade resulted in the impasse of trade talks. In addition, if China is unable to contain North Korea, it could bring more uncertainty to Sino-US ties.
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