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Emerging markets dividend yield highest since 2009


Dividend yields in the emerging markets are at their most attractive in five years, according to ING Investment Management International.

Manu Vandenbulck, senior investment manager at ING IM says: “Dividend yields are at their highest in five years and are well covered by underlying earnings. Especially Eastern Europe offers attractive dividend opportunities. Currently the average dividend yield on E-Europe is around four per cent which can grow over 10 per cent this year as European economies recover. Over the last 12 months, stocks in Eastern Europe have underperformed ca 25 per cent stocks in Western Europe and current valuations offer margin of safety. As investors bought into Western European stocks on economic recovery hopes, Eastern European equities have been largely ignored while many stocks in E-Europe are operationally geared to the recovery in the West.
"Furthermore, and after three years of negative earnings revisions, we see potential for earnings to stabilise this year which is supportive for markets.”
ING IM also sees value in Poland with its growth very much linked to that of the Eurozone and has favourable dynamics when considered in the Global Emerging Market context. Furthermore, it also has low exposure to China which has experienced a recent slowdown.  
Vandenbulck says: “Poland continues to show a good growth momentum. Its resilience during the EMD sell-off suggests that the country is better prepared than in earlier crises in the emerging markets.
“We continue to prefer countries with limited macro imbalances, where credit growth has been modest in the past five years and where exports to developed markets are a substantial part of GDP. Poland matches these criteria, offering reasonable growth prospects. This is in contrast to the rest of the emerging world where growth is likely to decline substantially in the coming quarters.”
In terms of countries to avoid, ING IM points to Turkey highlighting that the country remains at the mercy of its macro imbalances and while value is emerging, it is not as yet sufficient. Furthermore, although Greece has had its crisis, it is very expensive as new emerging market investors come to hide.
Vandenbulck adds: “The market focus is now on growth, or better, on the absence of growth. Without far-reaching structural reforms, the growth prospects in several emerging countries are poor. Current account deficits need to narrow more, inflation has to be controlled. To achieve this, structural reform is required.
“Knowing that leverage in the emerging world has risen over the past five years by an average of 20 percentage points of GDP, we can say that the sensitivity to higher interest rates is high, in the corporate and household sectors, depending about which country we speak. This year, the pressure is likely to increase on the countries where debt-to-GDP ratios have risen the most. Here the risks of corporate defaults and problems for the banks are the highest. The countries that look most vulnerable in this context are Malaysia, Thailand, Turkey and Brazil.”

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