Financial stock falls ‘bode ill’ for funds management sector

The medium-term implications for the funds management industry of steep falls of financial stocks on the Australian Stock Exchange over the past few days are “not positive”, according to equities consultant Carlos Gil, chief executive of Microequities.

“If the current fallout is sustained, and we don’t see the market bouncing back in the short term, I think confidence might be shaken, with an adverse impact on inflows coming into the funds’ FUM,” he said.

Gil said the origins of the market onslaught on the financials sector in recent days, notably on companies such as Allco, MFS, and Centro, are from within the financial sector itself.

“The sector in general is not a defensive sector and it’s typically exposed to the cycle, but we’re seeing that the falls have been accentuated if you like by the debt structures of these companies

“It’s not like other recessions we have seen where there has been a much more macro economic cause, maybe even a consumer slump.”

“This time the problem stems from financially-complex structures of these companies, where the level of visibility in terms of their debt risk profile is hard to ascertain.

“If they have debt hybrids and all sorts of complex financial structures behind them, it’s very hard for investors to ascertain exactly what the risk profile of their debt is,” he said.