Specialist emerging market fund manager City of London Group’s assets under management (Aum) fell by 8 per cent in the six months to the end of December 2018.
The company had funds under management of £3.6bn at the end of December 2018, compared with £3.9bn in July 2018.
The company earned fees on those assets of £15.6m, and a profit of £5.2m.
In the the half-year results statement, released to the market this morning (February 18), the company’s chairman, Barry Aling, said 2018 was a year of "major challenge" across emerging markets.
He added: "I have long since been aware of the risks inherent in trying to forecast markets and this was never more the case than in 2018, when both emerging and frontier markets suffered falls of 15 per cent and 16 per cent respectively.
"The fall in the MXEF (EM) index of close to 7 per cent in the first half of the calendar year owed much to weaker commodity prices and downward pressure on those economies with significant net US$ liabilities, such as Turkey, while the combination of rising US interest rates and intensification of the US/China trade dispute served to exacerbate this weakness with an 8 per cent fall in the second half of the year, led by a 17 per cent fall in the Chinese market.
"While trade-related worries have been a concern for Chinese equities throughout much of 2018, the increasing signs of debt-related stress in the economy, specifically related to the real estate sector, may prompt the Bank of China to revert to a more accommodative liquidity policy in 2019 in order to avoid the risk of a crash landing.
"Similarly, recent comments emerging from the US Federal Reserve suggest a parallel awareness of the need for caution in realising the longer-term goal of draining liquidity from asset markets (through higher interest rates) on the other side of the Pacific."
Neptune Investment Management’s chief economist told FTAdviser in January emerging markets’ performance in 2018 had been a "shocker" – with emerging markets falling about 20 per cent – but 2019 could prove better, depending on whether or not two key scenarios play out.
He said: "The first would be some stabilisation of the Chinese economy, which has been decelerating throughout the past year.
"We've seen quite a lot of stimulus from the Chinese government over the past nine months or so, and that should start to feed into some stabilisation in the second quarter, but it's not a given by any means."
Second, he said, would be the weakening of the US dollar because "a strong US dollar weakens [emerging market] balance sheets – they tend to hold US dollar denominated liabilities, it's not matched on the assets side and it makes things difficult for them when the dollar goes up".
david.thorpe@ft.com
