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Oct. 21 (Bloomberg)— Jim Rogers, chairman of Rogers Holdings, talks about his investment strategy for commodities and the outlook for the Chinese economy. Rogers speaks from Singapore with Andrea Catherwood on Bloomberg Television's "The Pulse".
Oct. 14 (Bloomberg)— Rajiv Jain, a portfolio manager at Vontobel Asset Management, talks about the outlook for emerging-market stocks and currencies, and investment strategy. Jain speaks with Betty Liu on Bloomberg Television's "In the Loop".
Investors pouring record amounts of money into stocks of the fastest-growing economies are favoring shares typically bought by the most conservative money managers. Equities with the highest dividends in the MSCI Emerging Markets Index advanced 25 percent this year, beating companies with the best earnings expansion by 12 percentage points, the most since 2003, according to data compiled by Bloomberg. Inversiones Aguas Metropolitanas SA, the Chilean water utility with an 8 percent yield, returned 32 percent since December and Kangwon Land Inc., the South Korean casino operator that's lifted payouts by 30 percent in the past year, rose 54 percent.
Demand for emerging-market dividends is surging as record low bond yields prompt investors to shift into stocks with the most reliable returns, Credit Suisse Group AG says. While developing nations from Brazil to Thailand lifted taxes on foreign buying of fixed-income assets this month to stem currency rallies, they'll probably refrain from targeting equity inflows, according to Morgan Stanley. "There is a huge amount of liquidity looking for yield," said Edward Lam, a money manager at Somerset Capital Management LLP, which oversees $700 million in developing nations, including the Somerset Emerging Markets Dividend Growth Fund. "That's beginning to drive inflows into higher-yielding equities in emerging markets."
Fund Inflows
The MSCI emerging-market index climbed 0.6 percent to 1,108.33 at 10:41 a.m. in London, heading for the biggest gain in five days. Developing-nation stock mutual funds attracted more than $60 billion this year as benchmark interest rates near zero percent in the U.S. and Japan lifted demand for higher-yielding assets, data compiled by Cambridge, Massachusetts-based research firm EPFR Global show. U.S. stock funds had outflows of $71 billion, according to Investment Company Institute data.
More emerging-market companies are returning cash to shareholders than ever before. At least 634 equities in the MSCI gauge paid dividends as of the end of September, including 52 stocks that yielded more than the record-low 5.64 percent average annual rate on company bonds, the most since June 2005, data compiled by Bloomberg and JPMorgan Chase & Co. show.
Bond Yields Tumble
The MSCI emerging-markets index yields 2.3 percent in dividends and its payout ratio, a gauge of companies' ability to boost dividends, is about 34 percent, or three percentage points below the 15-year average, according to data compiled by Bloomberg and Morgan Stanley. Dividends have accounted for more than 20 percent of long-term returns from emerging-market equities, Jonathan Garner, a Morgan Stanley strategist in Hong Kong, wrote in an Oct. 8 research report. Chairman Ben S. Bernanke said "additional" monetary stimulus may be warranted to spur growth in the world's largest economy. But yields on five-year U.S. Treasuries have already tumbled to 1.1 percent from 2.7 percent at the end of last year as the Federal Reserve purchased $1.7 trillion of debt securities.
Yields on dollar-denominated bonds of emerging-market governments dropped to a record 5.2 percent last week, JPMorgan's EMBI+ Index shows. The Standard & Poor's 500 Index yields 1.96 percent, according to data compiled by Bloomberg.
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Shares of Santiago-based IAM are still inexpensive after this year's rally, Somerset's Lam said. The holding company whose main asset is a controlling stake in water utility Aguas Andinas SA has paid dividends every year since its November 2005 initial public offering, and payouts during the past 12 months amounted to 8 percent of the current share price, data compiled by Bloomberg show. The dividend yield is more than double the 2.98 percent yield from Chilean government bonds, according to JPMorgan data.
Kangwon Land has an attractive combination of profit growth and dividends, according to Jonathan Pines, the London-based director of emerging markets at Hermes Fund Managers Ltd. The Gangwon-based company, which runs the only South Korean casino open to local residents, has a dividend yield of 3.7 percent. Earnings before interest, taxes, depreciation and amortization will climb 59 percent next quarter, according to the average of eight analysts' estimates compiled by Bloomberg. The stock is valued at 11.9 times profit estimates, compared with 16 times for global peers, data compiled by Bloomberg show.
Brazil Triples Tax
Emerging-market policy makers seeking to keep their currencies from appreciating too fast have focused on stemming foreign purchases of bonds rather than stocks. Brazil tripled the tax it charges foreigners on investment in fixed-income securities to 6 percent this month. Thailand will impose a 15 percent tax on income from domestic bonds bought by overseas investors, Finance Minister Korn Chatikavanij said Oct. 12.
Nineteen of 21 major emerging-market currencies tracked by Bloomberg strengthened against the dollar the past three months, making local export industries less competitive. Thailand's baht has gained 7.9 percent while the Brazilian real is up 5.4 percent. "These measures are oriented more at short-term fixed— income flows," said Garner, the chief Asia and emerging-market strategist at Morgan Stanley in Hong Kong. "Countries tend to appreciate investors who take equity risk."
'Quite Nervous'
Emerging-market stocks with the highest dividend yields have trailed growth stocks by about 16 percentage points on average during the past six years, according to data compiled by Bloomberg. Investors would only be piling into dividend stocks if "they can find stocks that they like that generate decent yields and yet they really don't trust the market overall," Geoffrey Dennis, Citigroup Inc.'s New York-based emerging-market equity strategist, said in an Oct. 15 interview. "If they are buying dividend yield stocks, it tells me people are still quite nervous about market direction."
Growth companies are becoming attractive as a rebound in the global economy boosts sales, according to Michael Aronstein, president of Marketfield Asset Management. Developing nations will expand 6.4 percent next year as advanced countries grow 2.2 percent, according to forecasts this month from the Washington-based International Monetary Fund. Brazil's economy grew 9 percent in the first quarter, the fastest pace in 15 years, while China expanded 11.9 percent, the most since 2007.
Fed Bets
"We've actually added some more growth stocks to the portfolio the last three months," Aronstein, who oversees more than $600 million in New York, said in an interview with Bloomberg Radio on Oct. 14. "The world is in a position now where at least in parts of it, the economies are really beginning to pick up". This year's outperformance of high-yielding shares mirrors 2003, the last time the Fed held interest rates at an all-time low. Dividend stocks ended that year with gains more than 20 percentage points bigger than growth equities, according to data compiled by Bloomberg.
The rally this year is being driven in part by "the perception that the Fed may move toward additional quantitative stimulus," or purchases of bonds aimed at reducing borrowing costs, said Somerset Capital's Lam. The Fed has held its target for the overnight lending rate between banks near zero percent since December 2008. "Equities look relatively attractive" and may lure investment away from bonds, said Pines, who helps oversee about $2.5 billion in emerging-market stocks at Hermes. "There are quality companies at low price-earnings ratios that will grow earnings consistently."
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