This might seem to be a natural cue to rotate into emerging markets, but Henderson is clear that emerging market dividends remain at risk. It cut its forecasts for 2015 by $10bn, citing the ‘greater than expected slowdown in emerging markets and weaker global currencies’. It now expects global dividends of $1.15 trillion this year, which is down 2.0% (headline), though it expects underlying growth of 9.5%. However, the strong US dollar has had a disproportionate effect, and any stabilisation or reversal might shift this forecast.
Alex Crooke, head of global equity income at Henderson Global Investors said that the dividend index reflected the big trends in global financial markets: “Developed markets are seeing the best growth as their financial sectors heal and consumers become more confident. The US is far ahead of the curve, propelling dividends forward at breakneck speed…The slowdown in Chinese dividends has come sooner than we expected. Payouts from Chinese companies have nearly tripled in six years, but a fall in the country’s total payout is likely in 2015 for the first time. Companies there tend to link payout ratios directly to profits, so dividends are not smoothed through bad times as they are in many more developed markets.”
Relatively few global equity income managers are straying into emerging markets – they represent just 3% of the Henderson Global Equity Income fund, for example. However, if the yield gap becomes more compelling, more global equity income managers may be forced to make the leap.
