Investment Insights

Asia Infrastructure:
Resilient Income and Yield Premium

May 2020

Seeking income in Asia Pacific real assets

The Asia Pacific region is home to some of the fastest- growing countries and cities in the world. Strong population growth, increasing urbanization and rising incomes are leading to high levels of consumption and demand for supporting real assets. Two attributes that continue to entice income seekers to this asset class are income resiliency and a generous yield premium. 

Income Resiliency 

Asia infrastructure sectors have the built-in ability to meet the recurring and long-term income needs of investors. Firstly, structural trends like population growth and urbanization drive the need for adequate infrastructure. Over the long term, this supplants the risk stemming from business cycles. Secondly, the cash flow of infrastructure related sectors like utilities, transportation and real-estate investment trusts is steady and predictable due to the everyday need for necessities such as electricity, water, shelter and consumption. Thirdly, the ability to reprice services also serve as a hedge against inflation; protecting earnings and cashflow.

Yield Premium

Asia Pacific real assets have proven over the long term that it is capable of providing a yield premium to regional equity markets and bonds globally. This characteristic is underpinned by the typically long-term, nondiscretionary nature of the services. Often, these companies also boast monopolistic market positioning which have pre-determined, regulated rates of return.

The Bottom Line

The sticky and durable nature of dividends rooted in Asia Pacific’s population growth and urbanization can be an attractive long-term attribute to any portfolio. Furthermore, in this “lower for longer” environment, a sizable yield premium to traditional global asset classes is always welcomed. 
CHART: Asia Pacific Real Assets offer a relatively higher yield when compared to equities and bonds. Data as at 31 March 2020. 

Source: Bloomberg, as of 31 March 2020.Asia ex Japan REITs: FTSE EPRA/NAREIT Asia ex Japan REITs Index; Asia Pacific ex JP Utilities: MSCI AC AP Excluding Japan Utilities Index; Asia Pacific ex JP Infrastructure: MSCI AC Asia ex Japan Infrastructure Index; Asia Pacific ex JP Equity: MSCI AC Asia Pacific Excluding Japan Index; World Equity: MSCI World Index; US Equity: S&P 500 Index; US Corporate Bond: Bloomberg Barclays US Corporate Bond Index; Global Bond: Bloomberg Barclays Global-Aggregate Total Return Index; Global Treasury: Bloomberg Barclays Global Aggregate Treasuries Total Return Index.

Source: Legg Mason and Martin Currie. Data as at 31 March 2020 unless otherwise stated. 

IMPORTANT INFORMATION

All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, or a guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable, but the accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data. Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors. The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of,and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by the Securities and Futures Commission in Hong Kong. This advertisement or publication has not been reviewed by the Monetary Authority of Singapore.
Intended recipients in the People’s Republic of China ("PRC")(excluding Hong Kong, Macao and Taiwan for the purpose of this document):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorised by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea.
This material has not been reviewed by any regulatory authority in Korea.
Distributors in Macau:
If this document is distributed in Macau, this may not be used other than by the Distributors.
This document has not been reviewed by the Monetary Authority of Macao in Macau.
Issuer: Legg Mason Asset Management Hong Kong Limited.
All Investors in Taiwan:
This document is provided by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.;
Tel: (886) 2-8722 1666) in Taiwan. This document is for information only and does not constitute an offer or invitation to the public to purchase any shares in any fund in Taiwan.
Neither Legg Mason nor any officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this document or its contents. The information in this document is proprietary. This document may not be reproduced, distributed or published without prior written permission from Legg Mason. Any person coming into possession of this document should seek advice for details of, and observe, such restrictions.
If the Press would like to re-edit the press release from their own point of view, it should base on the public information provided by the Legg Mason Investments (Taiwan) and the information contained in such press release shall be not over-promising or exaggerating.
Legg Mason Investments (Taiwan) Limited is operated and managed independently.