In a note, analysts said the FTSE 250 asset manager had been a “standout” among its European counterparts since the end of 2017, however, if the valuation was going to be driven higher it would require “a sharp uptick in inflows”.
Despite the downgrade, UBS maintained its 425p price target on the stock, saying Ashmore was “better positioned to benefit from secular trends than peers” due to its focus on emerging market (EM) debt.
“In the coming years, we expect ASHM will face less pressure from passive competition and should benefit from a rising global allocation to EM debt,” analysts said, however, they added that this was already reflected in the premium forward price/earnings valuation for the firm which was 40% higher than its peers.
UBS added that the biggest risk to its downgrade was if an end to a 30-year bull run in developed market debt drove “sharply higher allocations to EM debt”.
“A long-term secular rise in the weighting to EM debt would be the Holy Grail for Ashmore. And while we cannot refute this will happen, there is not enough evidence for this to become our base case and to support a Buy rating at these valuation levels.”
In a second-quarter trading statement in mid-January, Ashmore said investment performance had been “modestly negative” due to weaker global market conditions in October.
In mid-morning trading Tuesday, Ashmore shares were down 0.2% at 413p.