Aberdeen Asset Management hurt by asset outflows

(MENAFN- ProactiveInvestors)  A glance at the above chart of the FTSE 100 shows the index retested recent highs again this week while European stocks rose to their highest level in three months amid widespread expectations that the European Central Bank would ease monetary policy further this week. News that core inflation within the Eurozone which excludes food and energy prices fell to 0.9% year-on-year in November from 1.1% heightened the likelihood of central bank action. Expectations for aggressive stimulus however were not met by the ECB's typically guarded response resulting in profit taking among European stocks. Policymakers cut the deposit rate by 10 basis points to minus 0.5% and extended its asset purchase programme by six months. Yet many in the markets had been looking for a bigger reduction in the deposit rate a possible cut to the refinancing rate and an increase in its monthly quantitative easing purchases sending European equities to their biggest one-day drop in nearly four months. By contrast Wall Street put in a more cautious week as investors reacted carefully to a bumper week of central bank comments and economic releases culminating in the key November non-farm payrolls report on Friday. Robust US labour data from private payroll processor ADP reported 217000 jobs had been created last month while October's reading was revised up to 196000 hinting at a healthy payrolls survey on Friday.  This was followed by Janet Yellen chair of the US Federal Reserve all but confirming 'lift-off' would occur at this month's meeting on 16thDecember. Yellen said the economy was set for further growth and firmer inflation warning there were risks in waiting too long to begin normalising policy. The futures market rushed to price in a 79% probability of a hike in interest rates up from 74% earlier in the day while the US dollar hit a 12-year high against a weighted basket of its peers. The strong dollar however weighed on the country's manufacturing sector last month as the Institute for Supply Management's headline index of manufacturing activity fell to 48.6 from 50.1 in October the lowest reading since June 2009. The report is likely to make some policymakers wary about hiking rates although the service sector which dwarfs the manufacturing sector is performing strongly and creating jobs while wages are starting to rise and core inflation pressures are building. Commodity prices remained subdued by the strong dollar with copper zinc and gold hovering near multi-year lows while a 10th successive increase in US crude stocks sent Brent back to $43.2 the lowest since late August. Few think Opec will make a move to support prices at their meeting on Friday although bullish bets by funds on Brent crude had risen during November. It has been a quiet week on the domestic front although technical analysis of the FTSE 100 reveals there could be further weakness ahead. Thursday witnessed the index fall from resistance at 6450 to support at 6200 before closing at 6232 while the oscillators are exhibiting bearish divergence and also have some way to decline before becoming oversold. Additional support is seen at 6020 and 5875 although a move back over 6270 might be enough to contain the index within its recent range. In conclusion the recent strength ahead of this week's ECB meeting was unsurprising although following an underwhelming set of policy measuresmy concern returns to the forthcoming US Federal Reserve meeting. Rising inflation and strong data may prompt the Fed to abandon its gradualist strategy and interest rates could rise faster than expected in 2016. As the world's most global central bank higher rates will not only increase the cost of capital in the US but also in other parts of the world most noticeably in emerging markets where growth remains weak and leverage high. Given the uncertainty it might be prudent to reduce equity exposure ahead of that meeting. Chinese equities have already come under intense pressure this year influenced by Black Monday in August and a series of withdrawals by sovereign wealth funds. Further bad news last week from several large industrial firms and tighter controls imposed by the securities regulator led to the worst week for the Chinese stock market since August. An exposed company I have been monitoring is Aberdeen Asset Management (LON:ADN) a FTSE 100-listed global investment management group. Final results on 30th November revealed profits had stalled as investors fled the Asian and emerging markets that the group is heavily exposed to. Total assets under management fell by £40.7 billion to £283.7 billion the worst quarter for outflows from this asset class since the global financial crisis and even chairman Martin Gilbert fears the situation may get worse before it improves. Aberdeen made pre-tax profits of £353.7 million in the year to the end of September down from £354.6 million the previous year as earnings per share fell from 23.54p to 22.28p. Despite a reduction in cash due to lower profits and a myriad of acquisitions the dividend has been hiked by 7% to 19.5p although with earnings forecast to fall in 2016 the dividend cover is slim and vulnerable. The low oil price has prompted sovereign wealth funds from the Middle East and Africa to withdraw funds so in an effort to diversify Aberdeen has made several costly acquisitions to support its funds under management. In the US it has bought FLAG Capital Management and Arden Asset Management while in the UK it has acquired Parmenion Capital Partners and Scottish Widows Investment Partnership. Martin Gilbert denies there has been any predatory interest and is keen to assert the importance of Aberdeen's independence yet after several rumours to the countary the share price has included some takeover premium which may unwind over the coming weeks.   The chart of Aberdeen Asset Management illustrates the downward trend experienced during much of 2015. Support from the September low at 290p is likely although should that level fail there is very little chart support until 240p and the oscillators suggest there could be further near-term weakness ahead. The outlook for Aberdeen's earnings is lower for the next couple of years while the risk of higher US borrowing costs will inflict additional pain upon emerging market economies many of which have gorged themselves on cheap debt much of it held in US dollars. As rates rise the interest on these loans could reach unsustainable levels accentuating the downturn. At the time of writing the share price is 311.9p and I am inclined to believe the trend lower appears set to continue. Near term targets are seen at 299.4p 290p and 248.5p while a stop loss at 322.8p could be utilised to minimize risk. This report was written by Mark Allen equity and derivative specialist. The writer does not hold a position in Aberdeen Asset Management but client accounts may. The material in this report has come from web-based data sources and Aberdeen Asset Management's corporate website.