Dollar weakness and the constant search for yield have put emerging markets back in the spotlight. For an asset manager that specialises in these regions, Ashmore (ASHM), this has had great results.
The share price lifts 7% to 423.6p as it reveals 10% growth in assets under management (AUM) in its third quarter to 31 March, standing at $76.5bn.
ASHMORE'S CRACKING QUARTER
Ashmore specialises in emerging market debt, which means any decline in the value of the dollar makes this asset class more appealing.
This is true for both dollar denominated emerging market debt and also debt issued in local currency. Ashmore offers both type of debt exposure to clients as well as equities.
According to Ashmore, it has just enjoyed its strongest quarter since June 2013, a year many emerging market investors still remember as one of reckoning.
In 2013, the US Federal Reserve signalled it would step down its asset purchase programme which led to a sharp sell-off in the markets. Emerging market assets were one of the main casualties of this monetary policy misstep.
THE DOG THAT DIDN'T BARK
If changes to monetary policy decimated emerging market assets in 2013, why then has the new wave of policy normalisation which came to the fore last year not had a similar impact on the asset class?
Michael Werner, an analyst at investment bank UBS, says that in 2013 we were still in a developed market bond bull market and now that is definitely over. He adds that while emerging market debt hasn’t performed as well as did last year in the quarter to 31 March, it is still outperforming developed market bonds.
Another difference to the two seemingly similar situations (in regards to changing monetary policy) is that the years preceding 2013 there was a lot of ‘fast money’ going into emerging market debt. This was withdrawn quickly, according to Werner, which amplified the decline of the asset class.
There is now more of a strategic shift towards emerging market debt, as opposed to chasing high yields in the short term.
Ashmore’s AUM beat broker Numis’ forecast of $72.2bn by 6%. Morgan Stanley analyst Anil Sharma expects to upgrade his estimates, currently pitched at $16.1bn of inflows for 2019 and 2020 with EBITDA margins rising from 64% to 68% in 2019.
While Ashmore’s increased AUM has come largely from existing clients, it shows that recent market volatility as seen in February has not yet impacted clients’ risk appetite.
