During
our
week
of
income-focused
content,
we’re
canvassing
the
views
of
fund
managers
who
invest
for
income.
In
this
comment
piece,
BNY
Mellon’s
Zoe
Kan
argues
the
next
decade
of
Asia
investing
will
be
about
income
rather
than
growth
Investing
in
Asia
has
historically
been
purely
focused
on
growth
opportunities.
And
little
wonder.
People
perceive
investing
in
the
region
as
a
play
on
global
gross
domestic
product
and
export
growth.
We
believe
this
is
a
fallacy.
Instead,
better
risk
and
reward
characteristics
can
be
found
by
focusing
on
income
as
well
as
growth
in
the
region.
In
the
next
decade,
investors
might
want
to
think
more
carefully
about
the
type
of
strategy
they
are
invested
in.
We
advocate
diversification
into
Asia
and
focus
on
companies
that
can
continue
to
pay
dividends
during
times
of
macroeconomic
uncertainty.
Dividends
play
a
key
role
in
total
returns
for
Asian
investors,
and
are
the
bedrock
of
income
strategies.
Overweight
Singapore,
Overweight
Taiwan
In
our
view,
a
focus
on
income
in
Asia
can
better
align
investors
with
companies
whose
cashflows
which
are
able
to
pay
dividends.
In
the
new
regime
of
higher
interest
rates
and
inflationary
pressures,
there
will
likely
be
more
volatility.
As
such,
we
think
it’s
important
to
be
selective
within
any
dividend-focused
approach.
Coupled
with
a
change
in
growth
dynamics,
investor
perspectives
on
investing
in
Asia
could
also
be
changing.
Over
recent
years,
China’s
internet
platform
companies
have
become
a
large
part
of
the
benchmark.
However,
valuations
have
been
impacted
due
to
wider
factors.
We
think
this
illustrates
one
of
the
pitfalls
of
focusing
only
on
growth
strategies
in
the
Asia
region,
where
valuations
are
not
grounded
by
dividends.
By
way
of
example,
we
are
overweight
Singapore,
which
plays
host
to
many
companies
with
strong
balance
sheets
and
decent
payout
ratios.
There
is
a
lot
of
wealth
and
trade
that
goes
through
Singapore
from
its
neighbouring
nations.
Banks
in
the
region
also
have
well-capitalised
balance
sheets
and
the
ability
to
sustain
higher
dividends
for
years
to
come.
Another
overweight
in
the
portfolio
is
Taiwan,
due
to
the
opportunity
around
its
many
technology
companies.
We
also
see
merits
in
Indonesia,
which
in
our
view
emerged
from
the
Taper
Tantrum
of
2013
stronger
from
a
current
account
and
fiscal
perspective.
We
see
strong
growth
coming
out
of
that
economy
and
think
this
is
likely
to
continue.
We
also
believe
India
offers
significant
potential
given
its
long-term
demographics,
strong
consumption
and
household
income
growth,
as
well
as
growing
levels
of
urbanisation.
Asia’s
ageing
population
is
supportive
for
income
strategies
because,
as
people
grow
older,
there
is
a
higher
need
for
income
to
fund
them
in
retirement.
Chipping
In
On
a
thematic
level,
the
technology
sector
provides
investment
opportunities.
We
believe
artificial
intelligence,
or
more
specifically
companies
supplying
the
hardware
for
AI,
present
interesting
opportunities.
The
technology
companies
held
in
our
portfolio
all
have
net
cash
balance
sheets
and
pay
dividends,
and
we
expect
the
AI
industry
to
increase
dividends
as
profits
grow
in
the
coming
years.
One
of
our
largest
holdings
is
Asia’s
largest
chip
manufacturer:
Taiwan
Semiconductor
Manufacturing
Company
(TSM).
Overall,
we’re
broadly
looking
for
balance
sheet
strength,
strong
business
models,
and
companies
that
have
economic
moats that
give
a
competitive
advantage.
In
other
words:
quality
franchises,
with
a
degree
of
pricing
power,
which
maintain
profitability
and
margins –
and
pay
dividends
at
the
end
of
the
day.
Especially
with
Asia,
we
think
the
capital
growth
component
of
a
portfolio’s
total
return
is
more
volatile
and
less
dependable
than
the
income
component.
By
harnessing
the
potential
of
dividends
and
dividend
growth,
it
is
possible
to
compound
total
returns
in
a
more
consistent
fashion
than
by
trying
to
target
growth
on
its
own.
Zoe
Kan
is portfolio
manager
of
the BNY
Mellon
Asian
Income
fund
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