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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.
“Emerging markets are more volatile and more cyclical, but they have been performing well now since September 2022,” said Tom Shippey, Ashmore’s finance director, adding that the “negative cycle in emerging markets has turned”.
The MSCI Emerging Markets index is up 1.7 per cent year on year.
“A weaker dollar is typically good for emerging markets, emerging central banks are ahead of developed world central banks in the rates cycle and the longstanding structural trend that EM grows faster than developed countries still stands,” he added.
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 investors from North America and northern Europe particularly risk-averse, the company said.
“When people are feeling uncertain about the world, they possibly retrench to their home market,” added Shippey. “Things they perceive to be risky bear the brunt. Particularly [at the end of last year], we saw that de-risking happen.”
The company said the assets under management for emerging markets clients rose by $1.1bn over the same period, increasing their total share of Ashmore’s investor base from 27 per cent to a third.
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 almost 1.7 per cent by mid-afternoon trading in London, at 196p.
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