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HSBC upgrades Ashmore but cautions on investor sentiment slowdown in emerging markets

Published: 06:25 22 May 2018 EDT

Money
HSBC said it expected impacts from US treasury yields, a stronger dollar and EM elections

Global bank HSBC has upgraded FTSE 250-asset managers Ashmore group PLC (LON:ASHM) to ‘hold’ from ‘reduce’, saying it was well positioned to benefit from emerging markets (EM) but cautioned on a potential slowdown in investor sentiment.

“Ashmore is … well positioned to benefit if investor sentiment towards EM assets improves. However, we see near term pressures on revenue and earnings margins over FY18-20e” said analysts at the bank.

READ: Ashmore shares jump as it reports 10% growth in third quarter assets

They added: “We expect higher US Treasury yields, [a] strengthening USD and macro-political uncertainty from EM elections (e.g. Brazil, Colombia, Indonesia, Turkey) potentially to dampen investor demand for EM in the medium term. Our forecasts conservatively incorporate a significant slowdown in net inflows from USD15bn in FY18e to USD7.5bn pa over FY19-20e.”

The bank also forecast a 7-basis point reduction in the firm’s margins, above the consensus forecast of 5-basis points, saying: “This captures the dilutive impact of higher inflows from larger mandates (at lower margins) and our expectation the c75% of 2018-20e net inflows should come into lower-margin and lower-risk products”.

Despite the downgrade, the bank upped its target price for Ashmore to 395p from 385p, to reflect a higher earnings per share (EPS) estimate and a roll-forward of the valuation date.

In its third quarter results last month, Ashmore reported a 10% increase in assets under management, at US$76.5bn from US$69.5bn compared to the previous quarter, boosted by strong net inflows.

In late-morning trading Tuesday, Ashmore shares were up 1% at 399.6p.

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