Ashmore to make hay as ‘Trump trade’ fades

Asset manager riding high as emerging markets return to favour
Thursday 20 Apr 2017 Author: David Stevenson

Join in with emerging market specialist asset manager Ashmore’s (ASHM) momentum as it could enjoy a further boost if Trump’s economic plans are foiled.

If the US President doesn’t get his ‘border adjustment tax’ through Congress, it could have far reaching implications for emerging market assets, particularly debt. This is the area where Ashmore specialises.

ASHMORE GROUP - Comparison Line Chart (Rebased to first)

If the proposed tax doesn’t get passed, then it would leave less scope for Trump’s fiscal stimulus package.

The result could be less inflation in the US which would weaken the dollar against emerging market currencies and make emerging market local currency debt more attractive to investors.

Power to the people

Jahn Dehn, head of research at Ashmore, says there are very few local currency denominated assets in emerging markets left in foreign hands.

‘As foreign investors come back to local markets they have to turn to local players for securities instead of buying them from investment banks in New York or London,’ he adds.

‘The result is that capital flows back into emerging market countries, which then begins to reverse the financial tightening of recent years which contributed so much to the slowdown in growth in emerging markets.’

Ashmore’s recent trading statement showed a 7% increase in assets under management to $55.9bn in the first three months of 2017.

In recent years the company has been hit by heavy outflows as investors pulled billions from its funds but analysts expect the more positive recent trend to continue. Paul McGinnis at Shore Capital predicts Ashmore will get another $1bn inflow in the current quarter.

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Losing my religion

Dehn reckons investment in developing economies will ramp up ‘if investors can get over the widely held quasi-religious view that emerging markets is somehow too risky’.

Ashmore’s chief executive Mark Coombs says that improving emerging market performance should challenge investors’ predisposition to underweighting the asset class.

For investors to make money from Ashmore, the market needs to separate Trump’s rhetoric from reality. Signs that the ‘Trump trade’ is already going south are apparent with his failings to reform healthcare and if the border tax has a similar fate, advantage Ashmore.

Even if Trump causes damage to specific emerging markets such as Mexico, as an active manager Ashmore can ascertain which markets are less susceptible to US policy and stay out of danger. (DS)

Ashmore Group (ASHM) 360.7p

Stop loss: 288.6p

Market value:  £2.6bn


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