Ashmore: appetite for risk intensifies pain from emerging markets sell-off

Contrarian bets in risky markets helped Ashmore amass nearly $100bn of assets under management at its 2019 peak. That has shrunk by a third, following a savage sell-off in emerging markets. But even as the London-listed asset manager announced the latest decline — a $14.3bn or 18 per cent drop — in the quarter to June, it struck a characteristically chipper tone. Emerging markets offer exceptional valuations and relatively healthy fundamentals, it insists.

Thursday’s 6 per cent share price fall, taking it to half its value a year ago, suggests investors are unconvinced. The message is hard to get across while rising debt-servicing costs cripple vulnerable developing nations like Sri Lanka and Pakistan.

Ashmore rightly points out that many emerging countries are ahead of developed countries’ central banks in tackling inflation. Yet the steep interest rate increases now expected to deal with the scorching 9.1 per cent US inflation rate will cause widespread pain.

Emerging market fixed income tends to outperform when US interest rate rises are predictable but not when they come as a shock. The JPMorgan EMBI global spread index — a measure of the riskiness of dollar-denominated emerging market sovereign bonds — has widened by 170 basis points since January to levels only surpassed a few times over the last 20 years.

The pain is amplified because Ashmore has taken on more risk in the hope of benefiting from the recovery of oversold assets. It underperformed relevant indices over the quarter with investment losses of $7.7bn accounting for 54 per cent of the drop in assets under management.

The investment case for Ashmore relies on the bad news being priced in and its strong balance sheet. Ashmore’s £667mn of excess capital is the equivalent of nearly half its market value and enough to cover dividend payments at their current rate for more than five years. That should give investors confidence in the 8 per cent yield — a valuable support for those brave enough to bet on the resilience of emerging markets.