Could income investing be the sensible strategy when it comes to seeking opportunities in emerging economies? Darius McDermott, managing director of FundCalibre, looks at the potential opportunities.
Unloved for many years, Asia and Emerging Markets have been far more compelling in 2025, as superior economic growth forecasts, attractive valuations compared with developed markets, the weakening US dollar, and major structural tailwinds – such as favourable demographics – have sparked renewed investor interest.
But many are still fearful of economic and geopolitical turbulence and are hesitant to trust the region with their assets just yet. But could an income strategy be the solution to this uncertainty?
The income story in Asia is nothing new – but it continues to grow rapidly. China and South Korea are two examples of countries trying to push their respective companies for higher dividends and share buybacks. In India, it has now been almost a decade since the Securities and Exchange Board of India made dividend policies mandatory for the top 500 listed companies.
There are around 10,000 dividend-paying companies in the Asia ex-Japan region, accounting for roughly 11% of global dividends (almost double the amount offered in the UK)*. Investors also forget that dividends are the primary source of total returns for investors in Asian equities over the long term, accounting for more than 60% of the MSCI Asia ex Japan’s total returns over the past 30 years**. There is also more diversity in the region compared with the rest of the world; Asia Pacific ex Japan has the highest number of companies – 400 – with dividend yields above 3%***.
Why now – versus the past
One of the potential attractions today is that the lower-rate regime makes dividend-paying stocks increasingly attractive, as the traditional avenues for yield fall. Following the Federal Reserve’s rate cut in December 2024, the market had to wait for further cuts in 2025, only for two quickfire moves in September and October (both 25 basis points). The benefit is that companies can potentially borrow at lower costs, increasing their profitability and ability to maintain or increase dividend payments.
Research from Eastspring shows that over the past two decades, high dividend-yielding stocks in Asia outperformed the broader market in two out of the three Fed rate cutting cycles. The exception was in 2019-2020, when rates were cut to mitigate the economic impact of Covid-19; high-dividend stocks failed to outperform as the extraordinary situation also affected many companies’ ability to pay dividends. During that time, the starting level of the federal funds rate was also relatively low compared with prior rate cutting episodes and the magnitude of rate cuts was also much smaller**.
We have also seen some of the region’s currencies strengthen against the US dollar, which tends to be supportive for Asian equities.
Many of these companies have rising profitability, low gearing and importantly, good levels of free cash flow – with companies consistently covering dividends and buybacks since 2017 (1.4x in 2024)***. But with ongoing improvements in corporate governance taking place in numerous countries, there is scope for further growth. Despite Asian dividends having more than tripled over the past two decades, the region still holds some of the lowest payout ratios globally****.
Plenty of different opportunities
Aberdeen Asian Income fund manager Isaac Thong cites China as an example of an area where more dividend opportunities could be forthcoming given the slowing of the long-term growth rate to 5%. He points to LSEG data, which shows total cash dividends from the country’s 2,000 large and mid-cap firms rose to a record high of 3.4 trillion yuan ($468.84 billion) in 2023. This rose by 1.2% in 2024 and could rise a further 8.6% in 2025^.
He points to the stepping up in dividend payments from the likes of the region’s tech heavyweights Alibaba and Tencent as one of the most important developments. Both companies stand to be major long-term beneficiaries of the Chinese government’s ambition to become a global leader in AI by 2030, with the likes of Morgan Stanley forecasting the potential for it to be a $1.4 trillion market^.
He says: “The overall income yield of the Chinese market, at 2.4%, is still relatively low. We believe companies have the firepower to pay higher dividends and that may bring more of China’s innovative companies in scope.”
Of course, the region is not only home to burgeoning dividend payers like China, Korea and India. It also has mature markets like Australia, which has some of the highest dividend-paying stocks in the world. For example, Thong has targeted Reits in the region, in the belief that their high levels of income are sustainable.
Singapore is also popular due to its stable political and legal system, which has attracted many multinational companies to have their headquarters there. Taiwan also draws attention, boosted by its semiconductor companies amid robust demand for AI-related hardware and applications.
Jupiter Asian Income manager Jason Pidcock says some of the best opportunities for Asia equity investors are in technology companies, where the valuations and dividend yields are attractive.
“There’s a longer-term structural growth story around AI and the demand for the products that these companies, many based in Taiwan, are selling to the US technology giants. Taiwan’s US tech exports are rising, and where they are impacted by tariffs – companies have so far been able to pass on costs. Taiwanese companies also are investing in production capacity in the US that will sidestep tariffs entirely,” he says.
Other areas Pidcock is maintaining exposure to include defence stocks – given the continued geopolitical concerns. He also continues to target both Australia – due to regular flows into pension schemes and numerous attractive private sector businesses – as well as Singapore^^.
With investors looking for alternatives to US equities, it is easy to see why Asia and emerging markets are becoming of greater interest. But with geopolitics still rife, a good way to get the best of both worlds is through an income strategy that can tap into these growth stories but also show lower volatility compared with non-dividend-paying stocks. The idea that dividends are the offshoot of low growth stocks definitely does not hold true in this part of the world. In addition to those mentioned, investors may want to consider the Guinness Asian Equity Income fund, which invests in 36 companies, all of which have an equal weighting in the portfolio; or the Schroder Asian Income fund.
*Source: Janus Henderson Global Dividend Monitor 44
**Source: Eastspring, January 2025
***Source: Jeffries FactSet, October 2024
****Source: Schroders, 29 January 2025
^Source: Aberdeen, 30 September 2025
^^Source: Jupiter, 18 September 2025
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
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