INVESTORS looking for income in developed stock markets could face very tricky conditions this year, with UK and European markets experiencing hefty dividend cuts. We think that Asian markets are better positioned to provide some income shelter.

This is in part because many Asian countries were better prepared for the coronavirus crisis given their experience with SARS. They tended to be swifter to contain the virus – with potentially less economic damage – and were quicker in re-opening their economies. This is particularly true in China, where Beijing (along only with Berlin) has seen traffic increase to levels prior to the lockdown.

Dividends should also be more resilient. Compared with other regions, Asian dividend payments on average were drawing less heavily on companies’ profits prior to the crisis; this means that they are less vulnerable to reductions from companies looking to conserve cash. There is also less pressure from governments in Asia to withhold dividend payments compared to Europe, for example.

Each government in Asia has had its own individual response and economies already differed significantly, which will make for divergent outcomes within Asia as we move back to a more normal environment.

Due to this variance in prospects, we think it is possible to identify areas and countries within Asia that are less vulnerable to the pandemic’s disruption as well highlighting those that are overly exposed and should be avoided.

North Asian countries – including China – fared well in their containment of Covid-19, as did Singapore, Malaysia and Australasia. They reacted quickly to developments, putting social distancing measures in place and closing consumer outlets.

Meanwhile, the likes of India and Indonesia have struggled to contain the spread of the virus. The lower income per capita and financially weaker governments provide a more difficult environment for these countries to operate in.

We think China offers a compelling income source for investors, with a number of companies generating long-term growth and increasingly paying dividends back to shareholders. Although it is one of the lower-yielding parts of the region on average, its scale means that it accounts for a large chunk of the income opportunities in Asia.

Within China there are plenty of ways to capture what we see as the sweet spot for Asian income investing: intermediate dividends with long-term growth and attractive valuations. Given the poor short-term outlook for developed market economies – particularly for consumption – we think the best opportunities are in domestically oriented businesses that are exposed to (increasingly self-sustaining) intra-regional growth.

Risks remain of course, including new outbreaks of Covid-19 – as shown by the recent cluster of cases in Beijing. This risk is, of course, difficult to assess or mitigate, and applies to investing in all regions of the world.

In the short-term, the revival of US measures against China is another substantial risk, but it can provide opportunities elsewhere in the region. For example, Taiwanese companies benefited from having facilities based outside of China as trade wars escalated; this year, many are seeing a huge increases in demand as the world adapts to Covid-19.

As companies and individuals need to do more remotely, some stocks have seen sales equivalent to the pre-Christmas rush coming in the usually quieter first half of the year. While this is a short-term phenomenon, we think that changes to consumer behaviour will lead to higher longer-term demand than previously expected.

The Asian income opportunity remains compelling and now looks even more attractive in the context of major dividend cuts being experienced elsewhere in the world.

But – as has always been the case – investors need to be selective as the region contains a variety of countries, in very different stages of development, some of which will recover from Covid-19 better than others.

Mark Williams is head of Asia income at Liontrust Asset Management.