EM equities tend to perform well when their valuations are supportive, as they are now. There was a major bull run in EMs during the last decade despite successive and steady rate hikes by the Fed. Furthermore, the relative weakness of EM’s local currencies will boost exports and strengthen profitability, further supporting dividend growth.
Historical data shows that higher dividend stocks in EMs outperform their lower dividend peers. However, an active investment approach is preferable because passive dividend funds rarely add value, as demonstrated by the disappointing track record of most EM dividend exchange traded funds (EFTs). Fundamental analysis is needed to anticipate future pay-outs. and to react to market events.
In the 21st Century there has been a rapid increase in the number of EM stocks paying dividends to almost 90% of the market. In consequence, there is great potential for diversified dividend investment in EMs worldwide. However, ING Investment Management favours Chinese stocks over those of other Asian markets due to current valuations. In Latin America, Brazil offers a good choice of dividend stocks but companies are legally obliged to pay out a certain amount of their profits so fundamental analysis is required to assess the sustainability of their dividends. In Eastern Europe, there is a healthy dividend culture in Poland, which has a buoyant economy geared to the recovery in the Eurozone.
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