Ashmore is the obvious stock for investors who are looking for exposure to the developing world. While the emerging markets are a riskier prospect than those in the developed world, Ashmore has a wealth of experience that helps it to navigate what can be choppy waters.
From its very beginnings, Ashmore has focused on the emerging markets. It traces its roots back more than two decades to an emerging markets funds business run by ANZ, the Australian banking group. In 1999, Mark Coombs, who was ANZ’s head of global markets, led a management buy-out of the division to create Ashmore. It was listed on the London Stock Exchange in 2006.
The business has made a billionaire of the secretive Mr Coombs, the group’s chief executive, and has garnered a reputation as a specialist in developing markets.
Even so, investing in the often volatile emerging markets can be fraught with danger. In recent years they have been buffeted by the mounting tensions between the US and China. Those tensions have been made worse by the spread of the coronavirus pandemic, which first emerged in China late last year and has caused economic turmoil across the developing and developed world. Ashmore was hit hard by the sell-off that roiled markets during the first quarter, when fears about Covid-19 rose. Its assets under management had slumped 22 per cent to $76.8 billion by March 31 from $98.4 billion at the end of last year.
A trading update from the asset manager yesterday showed that it staged a partial recovery in the last three months, although the picture remains mixed. Its assets had rebounded by 9 per cent to $83.6 billion on June 30, carried higher by a strong rally in developing markets during the last quarter.
Yet while investment gains added $9 billion to Ashmore’s assets, investors also pulled a net $2.2 billion from it during the period.
The company said the net outflows were a reaction by its clients “to the extreme market conditions seen in the previous quarter”. Institutional clients accounted for much of the withdrawals. However, its equities and corporate debt funds enjoyed net inflows and Mr Coombs was upbeat on the prospects for the developing world, where he sees a valuation gap with developed markets.
“It is increasingly apparent that the emerging markets in aggregate are less likely to suffer a recession as severe as that in the developed world,” he said. “Meanwhile, current valuations are discounting a different scenario with emerging markets assets trading at significantly more attractive levels than the equivalent developed world bond and equity markets.”
Ashmore’s share price has, not surprisingly, tracked the wider swings in financial markets. The stock started the year at 518p before falling as low as 281¾p and then rallying. The shares closed at 418p last night, down 2.3 per cent on the day.
Tensions between the West and China remain a threat to the emerging markets and therefore Ashmore in the medium-term, as does the Covid-19 crisis.
Mr Coombs set out plans last year to reduce his shareholding in the business to less than 30 per cent. The stake has so far been cut from 39 per cent to 34.6 per cent and there are further share sales to go, which may overhang the stock price. David McCann, an analyst at the stockbroker Numis, said: “In the short term, the under-performance, positioning of funds and macro-uncertainty will likely remain a headwind to net flows”.
When Tempus last looked at Ashmore in October, this column recommended buying the shares. More caution is warranted now.
Advice Hold
Why Medium-term outlook for emerging markets clouded by international tensions and the Covid-19 pandemic
Clinigen
When Clinigen last updated investors in April it struck an optimistic note (Alex Ralph writes). The pharmaceutical and services company said it had experienced “only marginal” disruption from Covid-19 and had enjoyed a strong first nine months of the financial year.
Fast forward to yesterday’s full year update, however, and trading and the short-term outlook were less healthy. Clinigen said that it had faced “more meaningful disruption” to its activities from the pandemic in the fourth quarter, with its clinical services business affected by delays or cancellations to clinical trials and its medicines businesses suffering a reduction in demand as treatments in hospitals, particularly for oncology patients, slowed.
Clinigen floated on the London Stock Exchange in 2012 and has sites in North America, Europe, Africa and Asia Pacific, employing 1,100 people. It works with 22 of the top 25 pharmaceutical companies.
The recent pressures mean that Clinigen estimates an impact of at least £8 million to earnings before interest, tax, depreciation and amortisation for the year to the end of last month. This is mainly related to Proleukin, a cancer drug administered in hospitals.
The headwinds are expected to continue into “at least” the first quarter of its new financial year, although there are signs of a recovery in countries that have begun to relax restrictions.
Clinigen reiterated its medium-term outlook of gross profit growth of 5 per cent to 10 per cent, but it is expected to be at the lower end of this range in 2021, weakened also by the expected launch in the EU of a generic version of Foscavir, an anti-viral and its largest product before the acquisition of Proleukin.
It prompted shares in Clinigen to close down 83p, or 10.4 per cent, to 712p.
The company, though, remains upbeat. Trading for 2020, it said,
was in line with its previous guidance, despite the dip in the fourth quarter. Revenues are expected to have increased by at least 17 per cent on a constant currency basis and gross profit to have risen by at least a fifth.
Advice Hold
Why Uncertainty over impact of generic Foscavir but Covid disruption should ease
