ADDICTS of HBO’s Mad Men and fans of Lost in Translation may not find Tokyo an obvious home for an advertising group with global ambitions. But that’s not what the numbers say. Japan is the second largest advertising marketplace in the world. The heirs of Madison Avenue still keep the United States a long way out in front, accounting for 33.9 per cent of the global advertising spend as against Japan’s 10.3 per cent in 2010. But for comparison, the UK only trails in fifth, at four per cent.
When it comes to future advertising growth, the future is also away from more famous centres of excellence. Aegis estimates that half of all advertising growth from 2011-2015 will come from the big emerging economies of Brazil, Russia, India and China. America should still account for a very creditable 19 per cent of global ad growth, but that leaves it very much in second place.
Given that reality, Dentsu’s £3.16bn offer for London-based Aegis seems even more generous. While Aegis will give Dentsu a leading position in Western Europe, the two firms’ own presentation admits that 2012 growth in ad spend will be just 1.5 per cent in Western Europe, while it will be 8.7 per cent in Asia Pacific, which is also, largely thanks to Japan and China, a considerably bigger market in the first place.
So why is Dentsu paying Aegis so much to bring it along to the party in the emerging east? Partly because, whatever the regional growth story, Europe and North America remain critical markets. The new group will retain Dentsu’s eastern focus, with 70 per cent of projected revenues from Asia-Pacific, but with a healthy balance of 15 per cent from Western Europe and 12 per cent from America. There it will have an emerging story of their own, as the fastest-growing network in the US.
On the other hand, was Ashmore’s sinking share price yesterday a sign that betting on Asia-Pacific is a bad idea after all? The emerging markets investment specialist fell almost seven per cent after producing a trading statement that showed its assets under management had dropped 3.3 per cent in the quarter, to $63.7bn (£41.35bn). Outflows from a Japanese retail fund product were even implicated among the losses.
If the dedication of Ashmore to emerging markets were behind these disappointing numbers, that would be a far bigger story, one with implications not just for Aegis and Dentsu, but for global growth and countless investment strategies. Happily, there are other, less dramatic explanations.
Exhibit A, most of Ashmore’s losses weren’t from outflows but from underperforming investments. That still doesn’t sound promising, but bear in mind that the problems were largely in equities and multi-strategy, rather than Ashmore’s traditional strong suit of EM debt.
Exhibit B, Ashmore’s fees are expected to be £25m in 2011/12, almost all earned in the first half of the year. That’s less than a third of the 2010/11 figure of £85.4m, quite enough to alarm investors without offering a big picture explanation for everyone else to worry about. For that, you’ll just have to turn to today’s GDP figures from China.
Marc Sidwell is City A.M.’s managing editor