Asia’s growth and valuations make a compelling case for income investors
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Asia is a fruitful place for income and portfolio diversification, with more companies returning cash to investors as a reward for taking the risk of owning their shares. Parts of Asia are also attractive from a valuation perspective.
Investors in the UK might be less familiar with Asian stocks and so the easiest way to get exposure is via funds. The range includes ones that invest in companies listed across the broader Asia Pacific region; funds that cover emerging markets including Asia; and country-specific ones such as China or Japan.
Dealing with volatility
Sat Duhra, a fund manager for Henderson Far East Income, says investors with Asian exposure have faced several “exogenous risks” in recent years with conflict in the Middle East being the most recent shock. East and South Asian countries are vulnerable to Middle East oil supply issues, including Japan, South Korea, and India.
That creates a near-term headwind, but investing is about taking a long-term view. The Henderson fund manager says the growth drivers of Asian markets are broad based and have already demonstrated resilience in uncertain times.
“They stretch across technology, financials, infrastructure, consumer and wide-ranging corporate reform,” adds Duhra. “Asia has a unique position as a hub for technology supply chains; banks are bringing millions of consumers into the banking system accelerated by a digital rollout and infrastructure is benefitting from significant power demand boosted by AI.”
Risks vary from country to country in Asia which means investors considering this space need to be comfortable with higher levels of volatility compared to a UK or global equity income fund.
How Asian regions differ
Developed markets in Asia Pacific typically have more mature companies and one might expect to get higher yields from markets such as Australia and Singapore. These places have a stronger dividend culture and often pay out a higher proportion of profits as dividends versus companies in emerging markets.
In contrast, dividend growth rates might be stronger from Asian locations that sit within the broader emerging markets category such as India and Indonesia, albeit coming from a lower base and with lower headline yields.
For example, Hong Kong and Singapore are omnipresent with financial and property companies, and one would expect more stables dividends from them. Korea and Taiwan are known for their technology companies and while earnings from this sector can be more cyclical, dividends are increasingly on the menu.
Asian tech advantages
Sam Konrad from Jupiter Asian Income is one of the fund managers extoling the virtues of Asian tech companies. He helps to run a portfolio that includes Taiwanese semiconductor groups MediaTek and TSMC.
“(Many tech) companies we own have very few, if any, true competitors globally,” he says. “They’re also lower risk because they trade at lower valuations than the US tech stocks. They have extremely strong net cash balance sheets, and they are paying dividends and they’re growing those dividend payments quite quickly. US tech stocks might be fantastic companies, but you get almost zero dividend yield if you invest in any of them.”
Growth engine
Exposure to growth-style companies is an underappreciated benefit of Asian income funds in general.
UK-focused equity income funds often invest in mature companies that generate strong cash flows to pay generous dividends, but which are not growing earnings that fast. There is nothing wrong with such companies as they can be a source of reliable dividends, and investors might find the bulk of their returns come from income rather than capital growth.
Asian equity income funds can be different as they typically have a blend of both income and growth styles.
Just look at the long-term performance for a group of dividend-flavoured Asian equity funds versus the UK’s FTSE 100 index to see how the styles have translated into long-term returns. The funds in the accompanying table have a not too dissimilar yield to the FTSE 100, but they have been more fruitful investments.
All the names in the table feature in AJ Bell’s Favourite Funds and Investment Trust Select lists. They all have Asian exposure and yield at least 2%. The average total return from these six funds and trusts is 222% over the past 10 years – far exceeding the 145% return from the FTSE 100. Interestingly, the average performance is also better than the 190% return from the MSCI Emerging Markets index, and 192% from the MSCI AC Asia index, according to data from FE Analytics up to 18 May 2026. These are popular stock market benchmarks for the respective regions.
Notable performers
Invesco Asia Dragon tops the 10-year performance list, an investment trust which last year merged with Aberdeen’s Asia Dragon vehicle. It has value tilt and looks to buy when there is fear in the market and sell when the share price recovers. This might sound risky, yet it will only invest in a company when it has high conviction. The portfolio currently has a large China focus with notable exposure to technology and financial stocks, and the investment trust yields 3.1%.
Jupiter Asian Income has more than doubled investors’ money over the past five years with a 106% total return, and 268% over 10 years. It looks for companies with strong earnings and dividend growth, and Australia and Taiwan combined represent just over half of its portfolio on an equal basis. Key holdings include Singapore financial services provider DBS, and Australian oil and gas producer Woodside Energy.
Although it is not on the AJ Bell Favourite Funds list, it is worth noting passive fund L&G APAC ex-Japan Quality Dividends Equal Weight ETF for its ability to remove concentration risks.
The 3.8% yielding ETF tracks the performance of a basket of Asia Pacific-listed shares that demonstrate consistent dividend growth, offer high forward dividend yields relative to the market, and exhibit strong quality characteristics. It applies an equal weight process, meaning each company represents the same proportion of the portfolio when the ETF rebalances everything twice a year.
Dan Coatsworth: Head of Markets
Dan Coatsworth is AJ Bell's Head of Markets. Dan has been with the company since December 2012 and has more than 18 years' experience in the industry, following the markets and all things investing. He...
