However, Negyal cautions that it is more challenging to find companies with healthy payout ratios in certain markets. Although Korea is home to a number of good companies, it has one of the lowest EM payout ratios (18%), according to data from JPMorgan. Despite large government pushes to increase payouts, Negyal doesn’t see this trend reversing in the near future and remains underweight in the region.
Similarly, Russia’s payout ratio of 33% over the last 12 months to 30 June 2016, is not as convincing as it could be, though certain companies are making a point to improve their dividend policies, said Negyal.
But there are plenty of regions that house companies with consistently attractive dividend yields.
“We like a number of semi-conductor companies in Taiwan, for example, which offer high returns on capital,” he said. “Taiwan has a robust dividend culture where companies often payout over half their earnings as dividends. Apart from adding into weakness, into positions in Brazil and South Africa late last year – to capitalize on attractive dividend yields and fundamentals – we have made no dramatic changes to the portfolio over the past year which is benefitting from improving sentiment towards emerging markets as well as improving fundamentals. We have increased our underweight to China, as in general we see better dividend opportunities elsewhere.”
“It’s still too early to say whether or not we’re at an inflection point but earnings appear to be on the right trajectory with some signs of stability,” Negyal remarked. “For the next leg of the emerging markets rally to take root, companies need to deliver consistent growth to ensure the earnings recovery is sustainable.”
