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Henderson Far East Income celebrates 15 years of annual increasing dividends despite China hit

Henderson Far East Income celebrates 15 years of annual increasing dividends despite China hit – Henderson Far East Income (HFEL) has posted its annual report for the year to 31 August 2021. It was a tough 12 months for the trust which saw its NAV rise by 7.2%, behind the FTSE All-World Asia Pacific ex Japan and the MSCI AC Asia Pacific ex Japan High Dividend Yield indices at 17.3% and 16.7% respectively.

However, the yield from the dividend reached 7.8%, ahead of its AIC sector peers as well as the 12-month inflation rate of 3.2% at 31 August 2021.

HFEL paid a total dividend of 23.40p during the year under review, continuing its track record of increasing dividends each year for the past 15 years. It declared a 4th interim dividend for the year ended 31 August 2021 on 19 October 2021 of 5.90p per ordinary share. 

The major headwind for the region was the poor performance of China, which was the only major market to fall in sterling terms over the period. The managers said after a solid 2020 when GDP growth and earnings rose while most of the rest of the world fell, the Chinese economy was the first to enter a tightening phase in the first quarter of 2021, which unsettled investors who had been used to a one-way street of supportive monetary and fiscal policy.

The market was not helped by the regulatory clampdown on the internet sector which started with the cancellation of the Ant Group initial public offering in November 2020, but subsequently expanded to other areas as regulators challenged monopolistic practices and data protection. From their peak in the middle of February 2021 to the end of August 2021, Alibaba and Tencent, the two largest stocks in the MSCI China index, fell by 38% and 36% respectively, accounting for the majority of the index decline.

On the whole, the best performing markets were in North Asia with Korea and Taiwan both benefiting from the strong work-from-home demand for electronic products. The exception in South Asia was India where, despite some pressure from a Covid-19 escalation earlier in the year, the market rose by over 50% in sterling terms as the pandemic was brought swiftly under control and vaccination levels accelerated. Despite the weakness of the Chinese internet companies, the technology sector still outperformed the regional average driven by hardware and semiconductors while the strength of iron ore and copper helped the materials sector post gains of over 40%. Consumer discretionary was the only sector to post negative returns as ongoing regional lockdowns dampened activity.

The managers said:Although we are positive on the medium to long term outlook for the Asia Pacific region, we are a little nervous on the outlook for equity markets in general for 2022. The earnings momentum, which has been so strong off a low base in 2021, will be difficult to improve upon in 2022 while inflationary pressures, from rising input prices, and the potential for economic support measures to be withdrawn, doesn’t bode well for equity markets trading at relatively rich multiples.

 ‘Although Asian valuations are more attractive, a reduction in global liquidity has not historically been supportive for the region, although regional economies are in far better shape than their western peers with many more levers to pull to offset any potential downturn. The case is the same for dividends where strong balance sheets, high cash flow generation and low payout ratios make the dividend story for the region one of the most compelling.

 ‘We expect that yield stocks will perform relatively well in this environment of higher volatility and we remain focused on adding the most attractive stocks that fit our process as and when opportunities arise.’

HFEL : Henderson Far East Income celebrates 15 years of annual increasing dividends despite China hit

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