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Emerging market specialist Ashmore Group saw its inflows almost grind to a halt in the final three months of 2018.
Ashmore saw its assets under management increase by 0.4 per cent – or $300m (£233m) – as emerging markets continued to face pressure from rising US interest rates and a strengthening dollar.
The company’s assets under management rose to $76.7bn (£59.5bn) in the three months to December 2018, recording net inflows of $500m.
But this was tempered by negative investment performance of $200m (£155m) during the same period.
Mark Coombs, chief executive of Ashmore Group, said some clients might now take the opportunity of lower prices to increase their allocations to emerging markets.
He said: “Despite the more challenging markets experienced for much of 2018, client flows remain resilient reflecting investors’ very low allocations to emerging markets and recognition of the value available.
“The effect of tax-related stimulus on the US economy and its support for the US dollar started to fade towards the year-end, removing the main headwind for emerging markets outperformance.
“The reduction in emerging markets asset prices despite improving economic growth suggests underweight investors will continue increasing allocations to emerging markets, and a return to the positive market trends experienced in 2016 and 2017.”
Emerging markets tend to perform badly when the US dollar is stronger because many of these economies and companies borrow in dollars, so when the dollar rises the costs of repaying debt or borrowing more rises, leaving less cash for shareholders, to grow businesses, or for government spending.
Political turmoil in countries such as Turkey, as well as weak economic data from China, has also led to emerging markets struggling.
Over the past year, the Investment Association’s Global Emerging Markets sector has shed 11.78 per cent, compared to the IA’s best performing sector during 2018, which was UK Index Linked Gilts, which returned 2.57 per cent.
According to Ashmore, investment performance was “modestly negative” for the three-month period, reflecting the weaker global market conditions in October. Positive performance was delivered in November and December.