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Quarter-End Insights

Financial Services: Asset Managers Are Forced to Adapt

Major competitive and regulatory developments with asset managers prevail, while interest rates are a key trend for financials in general.

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  • We assess the global financial-services sector as fairly valued. It has recently traded at a market-cap-weighted price/fair value estimate ratio of 1.04--a 4% premium to what our analysts believe the sector is worth.
  • The near- to medium-term earnings growth of many financials will be based on how much additional income financial companies generate from higher interest rates compared with increases in funding costs.
  • For asset managers and life insurance companies, regulation and competition is leading to business model changes and mergers.
  • Natural catastrophes have recently led to high claims levels at insurers. We are skeptical that incurred losses are large enough to lead to an exit of capital from the reinsurance space and a significant rise in prices.

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Michael Wong does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.