Market news and an update from EM asset manager Ashmore.

Market News

US equity markets drifted lower last night – S&P 500 (-0.4%); Nasdaq (-0.1%) – with a further decline currently expected at the open this afternoon. This morning in Asia, markets were mixed as Chinese developers rallied on speculation of more stimulus: Nikkei 225 (+0.6%); Hang Seng (-0.2%); Shanghai Composite (+0.1%). The FTSE 100 is currently trading 0.7% lower at 7,378. The 10-year Treasury currently yields 4.25%, while gold slipped to $1,923 an ounce. Sterling currently buys $1.2559 and €1.1703.

The yen strengthened after Japan’s top FX official issued the strongest warning in months about the currency’s persistent weakness. Masato Kanda said speculative moves will be dealt with “appropriately,” after the yen hit a 10-month low against the dollar. Still, BOJ board member Hajime Takata said large-scale monetary easing needs to be kept in place, suggesting interest-rate differentials with the US will continue to pressure the yen.

Brent Crude rose towards $90 a barrel following news that Saudi Arabia will extend its voluntary cut of one million barrels per day for another three months until the end of December 2023. The voluntary cut decision will be reviewed monthly to consider deepening the cut or increasing production. The extension brings bullish risks for crude’s outlook, Goldman said, adding that the moves reflect the OPEC+’s “unusually high pricing power.”

A slew of companies including BHP and Philip Morris flooded the market with debt sales ahead of key economic data and the Fed rate decision. At least 40 businesses tapped global high-grade debt markets yesterday, with about half of those deals — or more than $36bn of new bonds — sold in the US. Underwriters forecast $120bn of US debt will be issued this month, much of which is expected to be sold in the next few days.

Source: Bloomberg

Company News

Ashmore Group, the specialist Emerging Markets (EM) asset manager, has this morning released results for the financial year ended 30 June 2023. The figures were below market expectations and in response the shares are down 2% in early trading.

Conditions in Emerging Markets improved over the year, leading to fixed income returns of 6% to 11% and outperformance versus developed markets, and equities delivered a positive return of 2%. After a weak first quarter, in common with global capital markets, Emerging Markets rallied over the subsequent nine months. The manager believes this reflects the benefit of sound and effective monetary policies, lower debt levels than developed countries, tighter sovereign and corporate spreads over the period, and the positive impact of a weaker US dollar on local currency returns.

During the year, the group’s assets under management (AuM) fell by 13% to $55.9bn, with most of the move attributable to a net outflow of $11.5bn because of institutional de-risking, primarily by developed world investors. This was partly offset by positive investment performance of $3.4bn as Ashmore outperformed market returns.

The group’s enjoyed improved overall relative investment performance with the proportion of AuM outperforming over one, three and five years at 67%, 69%, and 49%, respectively (vs. only 45%, 28%, and 48%, last year). In addition to the consistently strong relative performance in local currency, investment grade, and equities strategies, there has been a notable improvement in some of the other, higher yielding fixed income strategies.

The company is implementing a three-phase strategy to drive AuM growth: Phase 1 offers upside from higher allocations, particularly following a period of market volatility. Phase 2 involves diversification through equities, alternatives capital raising, and cyclical upside from intermediary retail flows. Phase 3 is delivering diversification benefits through the expansion of a local markets network – as a result, AuM from Emerging Markets clients has risen from 27% to 33% of group AuM. 

Adjusted net revenue fell by 24% to £195.4m, with net management fees of £183.2m (-25%) and performance fees of £5.1m (+13%). Continued strong cost management reduced adjusted operating costs by 7% at constant exchange rates, with variable remuneration down 24%. Adjusted EBITDA fell by 35% to £106.2m, with the margin down 10 percentage points to 54%.

The group’s balance sheet remains strong – the company has no debt and financial resources of more than £700m, including £470m of cash. The final dividend has been maintained to give a full-year payout of 16.9p, a yield of 9%.

Looking forward, the company sees a clear opportunity for further recovery in Emerging Markets asset prices. Consistent structural themes support long-term Emerging Markets growth, with assets currently undervalued. Emerging Markets have controlled inflation and central banks are cutting rates, so that GDP growth is significantly higher than in the developed world. China stimulus is expected to counter weak consumer confidence. Overall, the manager believes valuations remain highly attractive.

Source: Bloomberg