Ashmore rallies on UBS upgrade

Ashmore was a high riser on Wednesday as UBS upgraded the stock to ‘buy’ from ‘neutral’, saying the market has little to fear from rising US dollar interest rates.

UBS said the market has over-reacted to the impact a stronger US dollar and rising US dollar interest rates will have on emerging market debt and Ashmore, where more than 90% of assets under management are in EM debt.

“Our analysis shows EM debt has been able to generate healthy 8% annual returns in rising rate environments (versus 11% in other periods) and we expect Ashmore to report net inflows in the March 2017 quarter for the first time since 2014 and for these flows to improve through 2017 and 2018."

UBS pointed out that downgrades to Ashmore’s ratings and price target followed after the company’s disappointing fourth-quarter flow figures, which showed $700m of outflows.

“We believe those outflows, which were concentrated in the 3-4 weeks following the US presidential election, were a knee-jerk reaction by investors to rising US$ interest rates, a steepening US$ yield curve and a strengthening US$. Since mid-December, inflows into EM debt products have rebounded and the value of the EM Bond Index has appreciated by 4%.

"As a result, we forecast US$2bn of inflows in 2017 and then US$4bn of inflows in 2018. At current valuations, the market is pricing in US$2-3bn of outflows in 2017.”

The bank left its 350p price target on Ashmore unchanged.

At 0930 GMT, the shares were up 6.6% to 312.60p.