Morgan Stanley Sees China as Key for Asset Manager Growth

(Bloomberg) -- Global asset managers may struggle with growth in coming years, but China should provide some opportunities as it continues to open up to foreign investors and alternative assets offer potential, according to Morgan Stanley.

To keep gaining share, asset managers should look to the Asian nation as regulatory changes will lead to revenue growth in the long term, Morgan Stanley analysts led by Betsy Graseck and consultancy Oliver Wyman wrote in a joint report dated March 14. The country is set to drive 50 percent of future emerging-market revenue gains and onshore assets under management are expected to reach to $7 trillion by 2023, the researchers wrote.

In addition to China, alternatives could be an area with good potential for asset managers, the report said. Demand from high-net-worth clients and insurers could show strong growth over the next five years, with revenue expanding around $23 billion, the analysts said.

Valuations in the asset-management sector are at historical lows and core active revenue will shrink 36 percent to $75 billion over the next five years, the Morgan Stanley analysts estimated. They cited “structural pressures” such as growing unwillingness by investors to pay fees.

Among asset manager stocks, Morgan Stanley is overweight BlackRock Inc., Amundi SA, Blackstone Group LP and Macquarie Bank Ltd. as they the are best positioned for these opportunities. They are underweight Franklin Resources Inc., Waddell & Reed Financial Inc. and Platinum Asset Management, and equal-weight Standard Life Aberdeen Plc.

“Defining a growth agenda is now imperative and should become a differentiator,” the strategists wrote.

Shares of BlackRock rose as much as 0.8 percent in early Friday trading in the U.S., while Blackstone stock gained as much as 0.7 percent.

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