One of the reasons why I’m still, cautiously, optimistic about global equities is that most of the fundamental, backward-looking, drivers of returns still seem to be in place. Dividends, in particular, are still pushing ahead. According to Janus Henderson and their global dividend index, global divis advanced 7.8% on a headline basis in the first quarter, reaching a first-quarter record of US$263.3bn. Underlying growth was 7.5% with the impact of large special dividend payments offset by exchange rate moves while the Janus Henderson Global Dividend Index rose to a record 190.1. Looking at forward numbers, Janus Henderson expects no change to its 2019 forecast as higher special dividends are offset by the strength of the US dollar, with a likely record of US$1.43 trillion in payments this year, up 4.2% in headline terms or 5.2% on an underlying basis.
Interestingly according to Janus Henderson “Asia Pacific ex-Japan has seen the world’s strongest dividend growth since 2009, thanks to rising profits and expanding payout ratios. The Q1 total of US$18.1bn was up 14.7% year-on-year on a headline basis, breaking the record for first-quarter payouts, though this was mainly due to one-offs in a seasonally quiet quarter for dividends. Underlying growth was a more modest 3.8% with Hong Kong leading the way, while Australia lagged behind. Income investors in Japan have enjoyed growth far ahead of the global average over the last five years as more Japanese companies have embraced a dividend-paying culture. Dividends are 70% higher than in 2014, compared to 25% for the rest of the world. This strong performance continued in the first quarter with underlying growth of 8.7%.”
It’s worth repeating that central observation – Asia is rapidly becoming a center for progressive dividend payers.
Sticking with all matters Asian, I thought the following graphic cum map below – from Indian independent investment research outfit – Lalcap was interesting. We’re due the results of the general election any day now, with most experts expecting PM Modhi to retain office but with a much-reduced majority.
But buried slightly in the Lalcap report was a news story I’d missed. Apparently, the local government of Kerala has issued the first “Masala Bond” on the London Stock Exchange (17 May). According to Lalcap, Kerala Infrastructure Investment Fund Board’s Rs21.5 billion ($305 million) 5-year bond was priced at an interest rate yield of 9.723%. The funds raised are to be used for infrastructure development projects. “Masala is the Hindi word for spice and its usage for Indian Rupee bonds follows a global tradition in financial markets of giving easily recognizable nicknames to foreign currency-denominated bonds of a country that trade outside its shores. For example, “Samurai” bonds for Japanese Yen issues, “Kangaroo” bonds for Australian Dollar issues, “Dim Sum” for Chinese Yuan bonds, and “Bulldog” for £sterling debt raised and traded outside the UK. The bonds are attractive to the issuer because it allows them to borrow in Indian Rupees and thereby transfer the currency risk to the investor. It also gives them access to a larger pool of capital of global investors through a listing in a prestigious financial centre such as London”.
My sense is that this is the beginnings of a really big story – developed world funding of developing world social infrastructure. This represents what the global financial system should be doing – recycling all that spare capital to build out infrastructure in countries that really need it, as well as providing strong yields for first world investors.