Hunting for Yield? Consider Emerging Europe

Frank Holmes
Value of negative-yielding debt hits a record 13 trillion
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Until now this trend hasn’t been seen in emerging Central and Eastern Europe (CEE) economies, but that’s beginning to change. According to Bloomberg, all of the Czech Republic’s bonds were trading at negative real (inflation-adjusted) yields as of July 8, while the yield on Poland’s 10-year note was just slightly above zero.

So where can investors turn?

Emerging Europe Equities Offer Some of the Best Yields Right Now

I believe one of the best places in the world to find yield right now is emerging European equities, many of which feature generous dividends and stock buyback programs. Take a look at the chart below. Russia, the Czech Republic, Turkey and Greece all offer some of the highest combined dividend and buyback yields in the entire emerging market (EM) ecosystem. At around 7 percent, Russian stocks had the best yields among emerging European countries as of June, and were second only to Argentinian stocks, according to JPMorgan.

Emerging Europe has some of the highest yields in emerging market ecosystem
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Lately it hasn’t been easy out there for yield-seeking investors. Government bonds have continued to rally around the world, pushing yields to record or near-record lows. More than a few have even fallen into negative territory. In the middle of June, the amount of negative-yielding debt globally reached a record $13 trillion, with more than half of all government debt in Western Europe below zero.

click to enlarge

Until now this trend hasn’t been seen in emerging Central and Eastern Europe (CEE) economies, but that’s beginning to change. According to Bloomberg, all of the Czech Republic’s bonds were trading at negative real (inflation-adjusted) yields as of July 8, while the yield on Poland’s 10-year note was just slightly above zero.

So where can investors turn?

Emerging Europe Equities Offer Some of the Best Yields Right Now

I believe one of the best places in the world to find yield right now is emerging European equities, many of which feature generous dividends and stock buyback programs. Take a look at the chart below. Russia, the Czech Republic, Turkey and Greece all offer some of the highest combined dividend and buyback yields in the entire emerging market (EM) ecosystem. At around 7 percent, Russian stocks had the best yields among emerging European countries as of June, and were second only to Argentinian stocks, according to JPMorgan.

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Our Emerging Europe Fund (EUROX) provides access to all four countries’ generous dividends and then some, with Russia the number one country at 52.13 percent of the fund as of the June quarter, Turkey at 11.70 percent, the Czech Republic at 0.88 percent and Greece at 4.37 percent. Hungary, Poland and Romania, which also offer attractive yields, were held in EUROX at the time as well.

You can see the fund’s complete regional breakdown by clicking here.

One of the most generous dividend policies, I believe, is offered by Sberbank, Russia’s largest bank as well as the second largest holding in EUROX as of June 30. The bank is paying out 43.5 percent of its net profit for 2018, which comes out to $5.62 billion, or around $0.25 per share. In a June 12 note to investors, analysts at Renaissance Capital made Sberbank one of their top equity picks for the remainder of 2019. They also recommended natural gas producer Gazprom, gold mining company Polyus and Globaltrans Investment, all of which could also be found in EUROX as of June 30.

Russia Has Led Global Equity Rally So Far in 2019

There are other reasons why I find emerging Europe so compelling, and Russia in particular. Russian stocks have had a good run so far in 2019, surging 30 percent year-to-date through July 5 on a number of factors. For comparison’s sake, the S&P 500 Index rose 19 percent over the same period.

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Chief among the contributing factors …read more

Source:: Frank Talk