Emerging markets have turned a corner, insists Ashmore

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Investment manager Ashmore Group has insisted the growth potential of the emerging markets in which it specialises remains “undiminished” after it announced big outflows of investor money and a drop in pre-tax profits for the year to June 30.

Pre-tax profits for the year fell 6 per cent to £111.8mn, the group announced on Wednesday. The decline follows a 58 per cent drop for the year to June 2022 after it was taken by surprise by the war in Ukraine.

Net cash generated from operating activities was £104mn, down from £157mn last time and 5 per cent below analysts’ expectations. The decline reflected a fall in management fees associated with the reduction in assets under management. The group nevertheless maintained its final dividend at 12.1p, bringing the total payout per share to 16.9p.

Mark Coombs, chief executive of Ashmore, said there was “mounting evidence” that the negative cycle in emerging markets had turned. Asset prices were rising, the growth outlook was improving, inflation was falling and economies were benefiting from a weaker US dollar.

“After more than two years of tighter monetary policy, inflation is falling in emerging markets,” Coombs said. “The inflection point in the rates cycle has been reached.”

The group had already reported a 13 per cent drop in assets under management to $55.9bn because of outflows of $11.5bn in the year, which it attributed to clients shifting asset allocations to “safe havens”. Of the redemptions, $10.8bn were from institutional clients, with developed-world investors particularly risk-averse, the company said.

Ashmore’s results reflect a wider trend for investors to shift away from emerging markets as their growth has stuttered in the past two years. Their economies have suffered from both the coronavirus pandemic and rising interest rates.

Coombs said the group’s performance naturally lagged the pick-up in economies’ performance.

“The consistent strategy underpins Ashmore’s medium-term growth potential and the business model is designed to mitigate the impact of market volatility,” he said.

The group said 49 per cent of its assets under management had outperformed benchmarks in the past five years, rising to 69 per cent over three years.

However, David McCann, an analyst at Numis Securities, said an operational recovery at the company was not “imminent”.

“Investment performance remains poor, and we suspect it will continue to cause issues for both client retention and sales for some time,” he said.

Rae Maile, a Panmure Gordon analyst, nevertheless said he was “drawn” to the company’s outlook statement.

“[It was] relatively upbeat, even by the standards of the usual optimism regarding emerging markets,” he said.

About 37 per cent of Ashmore’s assets under management are invested in Latin America, with 29 per cent in the Asia-Pacific, 13 per cent in eastern Europe and 21 per cent in the Middle East and Africa.

Shares in the company, which are down 20 per cent over the year to date, were up 1.6 per cent in early trading in London, at 195p.