Aberdeen eyes dividend boom as Asian stocks step up reforms

Isaac Thong, new manager at Aberdeen Asian Income Fund (AAIF ), says investors can ‘have their cake and eat it with Asian income’, as strong growth opportunities increasingly pair with high-yield potential across the region.

The £349m trust increased its annual dividend rate to 6.25% of net asset value (NAV) in January. Thong explained the average payout from investments in higher-yielding companies in the region is just above 4%, which AAIF raises to 6% through dividend enhancement trades.

‘We invest in companies around their ex-dividend dates, when they’re about to pay out, especially special dividends, and after they’re paid, we exit. We’ve been doing this for two and a half years, and the track record shows it has been neutral to positive on NAV,’ he said.

‘The thing to note here is that only a very small portion of the trust is used for this enhancement, so it doesn’t detract from overall portfolio beta.’

In crude terms, beta refers to the portfolio’s correlation with the direction of the wider market. 

According to Thong, corporate governance reforms across the region, which had been sluggish, are now gaining momentum, particularly when it comes to dividends.

In the wake of improving corporate governance in Japan gaining attention from international investors, Korea is now making moves of its own. 

Discussing Korea’s Corporate Value-Up Program, Thong told Citywire: ‘There’s been a lot of back and forth in terms of implementation, but we think the general trend is positive.

‘We’ve seen progress already in the banks. The dividend payout ratio for banks three years ago was around 25%. This year, it should get to around 45% and next year, most have committed to 50%, if not more. So, that’s very encouraging from a dividend perspective.’

He added that in China, state-owned enterprises (SOEs) are being pushed to be more shareholder-friendly, with key performance indicators being transformed into ‘more market-oriented metrics.’

‘We’re seeing management of SOEs do road shows globally much more often. They’re there to spread the message that they’re looking to optimise market outcomes, and one means is by paying out more dividends.’

Private Chinese companies, particularly in the consumer and internet sectors, have also been upping payouts.

‘Tencent and Alibaba have recently formalised cash dividend policies, which we see as a positive step towards striking the right balance between reinvesting for growth and returning capital to shareholders,’ said Thong.

‘While their payouts are not yet industry-leading, the shift signals a clear change in mindset, supported by regulatory encouragement for higher dividends and buybacks.

‘Taken together, this has made China’s internet sector – historically seen as purely growth-driven – a much more compelling opportunity for income-focused investors.’

AAIF has historically suffered from an underweight to this sector, but a refined strategy aimed at ‘balancing income and growth across key Asian markets’ outlined in June’s half-year results has enabled new investments in the area, including a new position in Alibaba.

AI in Asia ‘alive and Well’

Following recent tariff uncertainties, Thong said AI opportunities in Asia remain ‘alive and well’.

In July, the trust added Taiwan-based ASE Technology, a leader in semiconductor packaging and testing.

Thong highlighted the value opportunity in the Asian semiconductor market more generally, noting: ‘Whatever Nvidia designs has to pass through the Asian supply chain for it to become a physical reality.

‘If you look at most of the Taiwanese semiconductor companies we cover, they derive a substantial amount of revenues from AI demand. So, they’re essentially AI plays. But their valuations compared to global peers are at substantial discount... We see an opportunity there and are positive on a vast majority of Asian semiconductor names.’

The trust also recently bought positions in Quanta Computer, a key manufacturer of AI servers powering data centres and cloud platforms based in Taiwan, as well as Shinhan Financial, one of South Korea’s leading banks.

These additions were funded by exits from AIA, Axtra Future City, and Sunonwealth Electric Machine.

AAIF has outperformed the peer average in its AIC Asia Pacific Equity Income sector over one, three and five years, helped by a closing discount. 

While Thong was only appointed as lead manager in April, over one year the trust’s shareholders are up 26% versus the 25.1% sector average and 21.2% for the MSCI AC Asia Pacific ex-Japan benchmark.