Ashmore sees client flow tide turning

Two stories are contained with half-year figures for emerging markets specialist Ashmore (ASHM). The first is positive: reported pre-tax profits rose by double digits, assets under management (AuM) climbed from $83.6bn (£60.6bn) to $93bn in a year, and 97 per cent of client funds outperformed their benchmarks in the six months to December.

The second is a more mixed: though cost control propped up margins, another period of net outflows contributed to a 6 per cent year-on-year dip in average AuM, meaning underlying pre-tax profits fell 15 per cent after once seed capital gains and foreign exchange translations – “lower quality” items, said Numis – were discounted.

A third, slightly more nuanced story, offers encouragement. Across the 2020 calendar year, net outflows steadily weakened as investors shifted from the haven-bound blind panic that characterised March and April to a risk-on attitude by the end of the year. Net flows have been positive from institutional investors in recent months, said group finance director Tom Shippey.

A weakening US dollar, rising inflation prospects and an increasing gross domestic product growth premium in so-called developing economies all mean the runway to sustained net inflows suddenly looks clearer.

Emerging market bonds, where spreads have increased to 350 basis points over US Treasuries despite strong credit ratings, look particularly attractive. Trading at a 60 per cent discount to the S&P 500, EM shares have the “potential for a relative re-rating versus developed world equity markets” in absolute and relative terms, argued Ashmore.

We are minded to agree, even as Peel Hunt expects adjusted earnings of 25.2p per share this year, and 26.3p in FY2022. Even against those estimates, the shares trade on less than 16 times’ next year’s earnings once cash is stripped out, which is a decent entry point for a long-term holding. Buy.

Last IC View: Hold, 391p, 11 Sep 20