You probably read in recent days that the emerging markets have formally entered bear market territory, down 20% from the highs of late January. The reasons for this are inevitably multifarious but simplify down to the hassles of higher interest rates (led by the US) and a firmer dollar plus, of course, trade war fears. All of these have helped expose cracks in emerging market domestic policy - such as the unsustainable economic policies of Argentina and Turkey. We all know that the best buying opportunities come - in hindsight - during moments of fear. My top-down perspective gut feel would be that we are at one of those moments for the emerging markets today. In short - if you pushed me - I think you make money on emerging market investments over the next year.
Now you could buy some collective fund...but far better to go for the jugular and buy an emerging markets-focused fund manager such as Ashmore (ASHM), which has recently published its latest corporate numbers. At first glance the numbers - admittedly up to the end of June i.e. not being impacted by the latest shabby emerging market interlude - look strong with a 26% rise in assets under management to a cool US$73.9 billion and 'record net inflows of US$16.9bn'. No doubt a few of these investors are regretting such allocation largesse but with 73% of the group's funds outperforming benchmarks over the last year (and either side of 90% doing the same over the last three or five years) at least such investments have probably done better than some kind of passive option. Of course such inflows and performance should help profitability and I see full year operating profit pushed up 14% to just under £180 million.
So all good stuff...and inevitably Ashmore is optimistic about both its preferred asset class ('appealing entry point for investors') and talking up its track record and business model. Normally I am quite cynical about such guff...but I have a bit of time for it. Clearly the performance of the emerging market debt and equity markets in recent months means you should not anticipate inflows and knock down the fee generating base a bit, but with performance fees less than 10% of the fee earning base, to anticipate it could still punch out £150 million of profit over the year to June 2019 is not unreasonable. Any generalised EM rally over the next twelve months would just help that out.
That would still put the company on a forward earnings multiple of around x16 - but with a free embedded call option on better emerging market times. There is the 4.5% dividend yield to munch on too. In short, I would embrace the recent 100p share price fall and snaffle some of the shares at around the current 350p share price. Battle that bear!
Filed under: Ashmore, Bearcast, Costis Globo fraudster, System1 Group, David Scott, Andrews Gwynne
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