Ashmore hit by more market weakness

From ‘weakness, to strength, to weakness’ pretty much summed up the year for emerging market fund management specialist Ashmore (ASHM), as its full-year results belied the notion that a materially weaker US dollar over the period would come to the rescue for emerging market funds. Prior to these results, the hope had been that investment fund flows would return to emerging markets in search of better value.

Instead, the results showed the impact of a deteriorating macro-economic environment as they revealed a 13 per cent fall in assets-under-management to $55.9bn (£44.3bn). In the Asian context, the ongoing fallout from China’s economic weakness, and property meltdown, is being felt across the region, which further clouds the visibility for the company despite evidence that the Chinese government is starting to offer economic stimulus.

However, there were also technical reasons why Ashmore’s investment performance was comparatively weak. This was partly because institutions simply cut their exposure to emerging markets during the year, resulting in outflows of $11.5bn, though management said that client activity levels were increasing in certain areas.

The higher interest rate environment partly offset some the reduction in management fees as Ashmore was able to earn greater returns from its cash holdings and investment activities, which helped to keep the decline in reported profits to a reasonably respectable 6 per cent – this was despite net management fees declining by 25 per cent to £183mn. Indeed, finance income increased more than 15-fold to £34mn during the year, which combined with operating costs that were 4 per cent lower at £94mn, meant that overall profitability was shored up. Management said that costs flattened out as the year progressed.

The company noted a certain amount of risk aversion among investors, despite the US dollar trending lower. It reckons that US investors, particularly, are holding back from subscribing to emerging market funds because of the ongoing war in Ukraine and geopolitical tensions in Asia.

Overall, the results broadly missed consensus estimates and Numis analysts note that the company’s investment performance for its key funds is still weak. This may cause problems for both client retention and sales for the foreseeable future, the broker observed.

Until the picture improves, it is hard to see the scope for a substantial rerating, despite the price/earnings ratio of 13.8 for 2024, according to Numis forecasts, staying at a discount to the wider sector. Existing shareholders will be grateful that Ashmore continues to maintain the dividend, but other catalysts are hard to spot. Downgrade to hold.

Last IC view: Buy, 275p, 8 Feb 2023