In today’s briefing:
- Asian Equities: Asia’s Robust Dividend Yielders
- White Smoke From the Market’s Conclave?
- Could A Cyclical Rebound Give the Bulls A Second Wind?
- Gold Market Stress Shifts Focus to the Current International Monetary System Structure
- Fortescue Metals Group (FMG AU): The Thrill Is Gone, And So Has The Dividend
- Antofagasta (ANTO LN): Good Set of Results, Capex Acceleration of >50%
Asian Equities: Asia’s Robust Dividend Yielders
- In today’s uncertain scenario, cash is king. Moreover, the high US treasury yields, which had rendered a dividend yield strategy relatively unattractive, are beginning to decline again.
- In addition to considering today’s dividend yields, we think it’s also imperative to take into account companies’ future earnings potential to assess future dividend stability.
- Screening companies with at least 6% forward dividend yield and 5% forecast EPS CAGR over next 2 years, we arrive at our basket of 23 dividend yielders, 13 from HK/China.
White Smoke From the Market’s Conclave?
- A sector rotation analysis reveals a market lacking in leadership, divided between a scenario of a rolling rotation from growth to value or a corrective pullback.
- The market faces several cross-asset headwinds from weakening liquidity, a threat of a replay of the yen carry trade unwind and renewed threats to growth from a trade war.
- Our base case scenario calls for a minor correction in the S&P 500.
Could A Cyclical Rebound Give the Bulls A Second Wind?
- The backdrop of synchronized monetary easing by central banks around the world should lead to a global cyclical rebound under normal circumstances.
- However, market internals in the U.S. and Asia are not supportive of the cyclical rebound scenario.
- The market isn’t discounting the very real threat of a trade war, which threatens to derail the current cyclical equity bull.
Gold Market Stress Shifts Focus to the Current International Monetary System Structure
- Demand for physical gold in London to be transferred to the US has surged due to fears of tariffs being imposed on gold imports by the Trump administration.
- Gold prices have been robust over the past year when measured in other major reserve currencies and Special Drawing Rights, thereby raising questions about the tightness of global monetary conditions.
- Falling US gold reserves will make it more difficult for official institutions to depress prices, thereby raising the influence of other factors in the determination of future price trends.
Fortescue Metals Group (FMG AU): The Thrill Is Gone, And So Has The Dividend
- Fortescue Metals (FMG AU) announced disappointing results, with revenues/profits down 16%/53% YoY, disappointing consensus slightly by 4-5%.
- Capex accelerated to 3.5-3.8 bn USD annually, vs the initial 3.2-3.5 USD. The company reduced its decarbonization capex to 400-500 mn USD from the initial >700 mn USD.
- Fortescue Metals (FMG AU) dividend payout ratio has reverted to its base level of 65%, yielding a modest 5.3% based on H1FY25’s 50-cent distribution.
Antofagasta (ANTO LN): Good Set of Results, Capex Acceleration of >50%
- Antofagasta PLC (ANTO LN) delivered robust 2024 results, showcasing an 11% EBITDA increase to $3.4 billion and significantly expanded margins to 52%, exceeding many industry peers.
- Antofagasta’s 2025 capital expenditure is projected to increase to $3.9 billion (from $2.4 billion in 2024), supporting production growth to 900,000 tons (vs current 660k tons) by 2029-30.
- Antofagasta’s valuation, at 27.2x P/E and 7.2x EV/EBITDA, appears elevated. Southern Copper (SCCO US), offering superior return on capital employed (ROCE), presents a more attractive investment profile.
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