Britain’s Black Friday, the right time to buy asset managers?

Added 24th June 2016

While some commentators remain firm in their conviction that Brexit has created the perfect storm for potential buyers of asset managers, others are unconvinced weak sterling is incentive enough.

Britain’s Black Friday, the right time to buy asset managers?

In a note out on Friday, Numis Securities predicted that certain asset managers like Ashmore, Jupiter, Polar and Schroders could get as much as a 10% profit boost for a 10% decline in sterling.

Because AuM and revenues are primarily linked to foreign assets and currencies, Numis argued that Brexit would actually boost profits for asset managers, creating an ideal sector buying opportunity.   

“Following a negative knee jerk share price reaction to Brexit, we would be looking to buy the stocks that sell off the most with the most positive profit exposure,” the firm said.    

Royal Bank of Canada (RBC) on the other hand, was less optimistic about the opportunities within the sector post-Brexit. The bank anticipated difficult times ahead for asset managers like Ashmore, Jupiter and Schroders whose share prices fell as much as 22% (240p), 16% (369.5p) and 27% (1966p), respectively, following the initial drop in sterling Friday morning.

“We expect large negative mark-to-markets and impaired flow outlook to be only partially offset by a weaker sterling as the asset managers that we follow have the majority of their costs denominated in sterling,” RBC said.

“We do not buy the argument that investors should buy asset managers because of a weaker sterling – it is our opinion that negative mark-to-markets, an impaired flow outlook and sector derating should significantly outweigh the benefits of a weaker sterling,” they added.

The bank’s forecast said wealth managers, Hargreaves Landsown and Brewin Dolphin, would also suffer mark-to-market losses and impaired outflows with no currency offset.

Both wealth managers experienced sharp declines in share prices during Friday trading. Hargreaves Landsown’s share price sunk by 16% at the start of trading to 1167p, while Brewin Dolphin’s share price gapped down to 150p in the early morning, a 41% fall, before rebounding to 220p a few minutes later.

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