Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / Emerging Market Dividend Stocks Are Back in Fashion
Transcript
- Lucas: Luna, I was looking at the five-day numbers for the big emerging market ETFs and something jumped out. EEM is up three point one percent, but the real story is Korea. EWY is up five point four percent, and the China internet ETF, KWEB, is up five point four percent too. Luna: That's a pretty strong week. What's driving it? Lucas: Well, a few things. The dollar has eased a bit, the trade-weighted index is down from its peak. But the bigger story is that a bunch of these companies are now paying real dividends. Alibaba, Baidu, JD — they've all initiated or increased payouts over the past couple years. Luna: So it's not just a growth trade anymore. These are becoming income plays. Lucas: Exactly. And that's a shift from the old narrative that emerging markets are purely about capital gains. Investors are starting to treat them like yield vehicles, especially when developed market bonds are still paying next to nothing in real terms. Luna: I saw Alibaba jumped eleven percent over the week. That's not a dividend move, that's something else. Lucas: Right, Alibaba's pop is probably more about earnings and buyback news. But the dividend angle is part of the broader appeal. When you look at the EWY, Korea's ETF, the top holdings are Samsung Electronics and SK Hynix, and they've been returning a lot of cash to shareholders. Luna: So what's the actual yield on these? Like, can you live off emerging market dividends? Lucas: Depends on the market. MSCI Emerging Markets as a whole yields around three percent, which is competitive with the S&P 500. But you have to be careful — some of the highest yields are in places like Brazil, where the real has been volatile. Luna: And a high yield can be a red flag. If a company's stock is falling, the yield goes up mechanically. Lucas: Exactly. So you need to look at payout ratios, free cash flow, and whether the dividend is sustainable. That's the real work. Luna: Let's talk about Korea specifically. Why is EWY leading the pack? Lucas: Korea has been pushing corporate governance reforms, the so-called 'Corporate Value-Up Program'. That's forced chaebols to return more cash to shareholders. Samsung, for instance, has been paying out a lot more. Luna: Ah, so it's a governance story, not just a cyclical one. Lucas: Right. And that's structural. It's a reason to think the dividend growth could stick. Luna: What about China? The internet names are famous for not paying dividends. Lucas: That's changing. Alibaba, JD, Baidu all pay now. Baidu's yield is still small, but it's a start. And with the government pushing for more shareholder returns, we're seeing a shift. Luna: But there's currency risk. If the yuan weakens, your dollar returns get hit. Lucas: Yeah, that's the big one. Over the past year, emerging market currencies have been under pressure. The yuan is flat against the dollar this week, but it's been weak over the longer term. So you can't just look at the dividend yield in local currency. Luna: So how does an investor actually approach this? Do you go for the ETF or pick individual stocks? Lucas: ETFs are a good starting point, like EEM or VWO. But if you want a higher yield, you might look at a dividend-focused fund. Or if you have a view on Korea or China specifically, you could buy the country ETF. Luna: And what about the risk of a trade war escalation? That could hit these stocks hard. Lucas: Sure, that's a real risk. But interestingly, some of these dividend payers are less exposed to tariffs because they're domestic-focused. Like utilities or telecoms in Brazil or India. Luna: So it's a way to get emerging market exposure without being all-in on exports. Lucas: Exactly. That's the appeal. And this week's rally shows investors are starting to see it that way. Luna: I've been looking at the numbers too, and it's not just Korea and China. Brazil's EWZ is up one percent, but it's been lagging. And Mexico is actually down. Lucas: Right, it's a selective market. The countries with strong dividend cultures and governance reforms are getting the flows. Others are being left behind. Luna: So what's your takeaway for someone who wants to dip their toes into EM dividends? Lucas: Start with a diversified ETF, look for funds that focus on quality dividend payers, and pay attention to currency. Don't chase the highest yield — look for sustainability. Luna: That sounds like a solid framework. And if today's episode helped you think about emerging markets in a new way, you know what keeps us going. Lucas: Yeah, listener support. If this was genuinely useful, you can buy us a coffee at buy me a coffee dot com slash fexingo. It keeps these episodes ad-free and independent. Luna: And it really does make a difference. Thanks for considering it. Lucas: So back to the market — one thing I want to flag is that this dividend trend isn't just a short-term thing. The structural shifts in corporate governance in Korea and China are likely to persist. Luna: And with the dollar possibly softening, it could give emerging market assets a tailwind. Lucas: Exactly. But you still have to be selective. Not every emerging market is created equal. Luna: Great point. Well, thanks for breaking it down, Lucas. I feel like I have a clearer picture now. Lucas: Glad to help. And to our listeners, if you're curious about a specific country's dividend landscape, let us know. We might cover it in a future episode.