Lockdown in Asia may soon move to dividend policies

• Revenues and profits are heading south due to lockdowns everywhere in response to Covid-19. Firms are rushing to revise their earnings guidance and issue profit warnings. The reduction in payout to shareholders seems inevitable given the very gloomy growth outlook. Although we are expecting a bigger recession for Asia as a whole than 1997-98, the reduction in corporate profitability and dividends will vary across countries, sectors and individual firms. In this note, we look into the potential for dividend distribution across a range of Asian economies. We compare the current situation with the 2008-09 Global Financial Crisis (GFC) and draw conclusions as to what to expect from Asian firms in terms of dividend payouts.
• First, it should be noted that some markets in Asia tend to offer a higher dividend yield, such as Australia, Hong Kong, Malaysia, Singapore and Taiwan. But looking at the dividend yield may not be enough of a guidance as corporate revenue is bound to collapse in certain economies and sectors due to the different impact from the pandemic.
• There is no surprise that dividends tend to correlate with profitability, which explains why there was a sharp fall in payout during the GFC. To better understand what happened in 2008, we calculate the relative reduction in dividend payout to shareholders versus the fall in profits. Australia was by far the most resilient, followed by the Philippines, Malaysia and Japan. In contrast, Singapore, Vietnam and India reduced dividend more than the fall in profit. As regards the sectoral breakdown, financials were the most resilient, followed by utilities and materials.
• While some elements from the GFC may still be relevant today, the situation has changed after a decade. The shock from Covid-19 is bigger and sharper. Growth in Asia will weaken to -1.9% in 2020 but stayed positive in 2009. This means we expect corporate profits to fall much more this time around, putting further pressure on dividends.
• This time around, economies with still positive growth either from less impact from Covid-19 or big fiscal and monetary stimulus should outperform with more resilience in dividends, such as mainland China, Taiwan and Korea. More sectors will be subjected to pressure due to the broader range impact and tighter regulations, such as energy and financials, which was not the case in 2009. Although the world starts to relax measures on mobility, a dividend lockdown is still on the cards.

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