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<\/p>\nHigh dividend emerging market stocks are poised to perform well despite trade uncertainty.<\/p>\n
Emerging market income stocks are becoming some of the best-positioned stocks to handle trade volatility this year, according to JP Morgan and other asset managers.<\/p>\n
In a year where global stock markets have been whipsawed, some investors have turned to income strategies, favouring dividends for a consistent yield in a period of uncertainty.<\/p>\n
While global equity income and UK equity income strategies have both performed well year-to-date (up 7.2% and 10.8% respectively), emerging markets have also rallied.<\/p>\n
The average fund in the IA Global Emerging Markets sector is up 9%, while the MSCI Emerging Markets is up 11.2%, more than double the return of MSCI World, as demonstrated by the chart below.<\/p>\n
Performance of sector and indices YTD<\/p>\n
<\/p>\n
Source: FE Analytics.<\/p>\n
However, investors may be concerned about allocating towards the region given worries over tariffs from US president Donald Trump ahead of the 1 August deadline.<\/p>\n
Omar Negyal, co-manager of the JPM Global Emerging Markets Income trust<\/a>, noted that investors need to be \u201crealistic\u201d about their emerging market allocations.<\/p>\n Company revenues and exports are closely linked in emerging markets, meaning that \u201cif we are entering into a world where trade is harder, that will have consequences\u201d. Yet he argued that many emerging market companies are in much better positions than they may initially appear.<\/p>\n Firstly, unclear economic policy from the White House has shaken investors’ confidence in the dollar. This allows central banks in emerging markets to take a \u201clooser approach to monetary policy\u201d, which can provide a stimulus for their domestic economies.<\/p>\n This should encourage investors to diversify and turn to quality stocks in emerging markets and the surest way to determine what these quality stocks are, he continued, is to follow the dividends.<\/p>\n In a market where corporate governance is a \u201creal issue\u201d, a company that proves it can pay out a dividend to its shareholders \u201cyear in and year out\u201d is a signal of a business quality and resilience.<\/p>\n These companies generally have solid long-term fundamentals and great capacity for growth that can continue even if tariff volatility remains, he explained.<\/p>\n For example, Negyal pointed to TSMC as \u201cthe best example of a progressive dividend stock in emerging markets\u201d.<\/p>\n Despite being one of the primary manufacturers of semiconductor chips, tied to the development of megatrends, such as artificial intelligence (AI) and tech, it pays a dividend.<\/p>\n \u201cThat\u2019s pretty different from a developed market investor, who usually cannot buy high-growth tech as an income investor,\u201d Negyal added.<\/p>\n For more than 20 years, TSMC has grown its dividend culminating in a 5% yield. While this has now fallen to around 2% as the share price has risen, it remains a highly attractive income stock, with \u201clong-term fundamentals we still really like\u201d, he said.<\/p>\n