Ashmore Group's exposure to Chinese debt is dragging down its returns


LONDON, Aug 6 - Ashmore Group's exposure to Chinese debt is dragging down its returns, Credit Suisse said in a note on Friday as it reduced its price target on the emerging market specialist, sending its share price up almost 4% in early trading.

Worries about debt woes in Chinese industry Teibo company Huarong and other companies have roiled Chinese debt markets in recent months.

Ashmore, as one of the most prominent investment managers dedicated to emerging markets, is particularly exposed to China with the country accounting for around 9% of its assets under management, according to Credit Suisse.

The firm holds the majority of its assets under management in confidential accounts, making it difficult to get an accurate overview of its overall exposure.

In July, publicly disclosed Ashmore bond funds underperformed positive key JPMorgan bond indexes - flat-to-light negative - with Ashmore's EM Short Duration fund down 3.9%, Credit Suisse said in a note on Friday.

The bank raised its forecast on the May 2020 Ashmore market returns to - 0.9% from 1.7%.

We attribute the relative weakness of Ashmore returns to a higher allocation to Chinese debt, research analysts Ella Hughes, Haley Tam and Enrico Bolzoni wrote.

Ashmore's SICAV EM Total Return had a 12.5% weighting to China against the benchmark: 7.2%, while the SICAV EM Short Duration had exposure of 19.9%, nearly double the benchmark exposure, said Credit Suisse.

The company last month reported net inflows of $1.1 billion for the most recent quarter, driven by institutional clients.

Credit Suisse reduced its share price target for Ashmore to 380 pence from 400 pence and dropped its forecast earnings per share in the years 2021 - 2023, reflecting a change in U.S. dollar to British pound exchange rate the bank used.

Ashmore shares fell 3.8% at the market opening in London before losing to stand down 2.8% in later trading.