Man group was driven down by the bears last night amid worries about pressures on the hedge fund group's earnings and sales.
Morgan Stanley said the hoped-for revival in sales may be at risk given the critical importance of Man's flagship AHL fund. Consensus forecasts anticipate gross sales growth of 15 to 20 per cent to $12.5bn in 2011 and net sales of $5bn. However, given the weakness in AHL's returns in 2009, that fund may to prove to be a drag on the recovery.
The broker also highlighted the impact of the current environment of low interest rates and limited capital availability, which makes it harder to structure products with capital guarantees. These are usually more attractive to distributors, given up-front fees of 4 to 5 per cent. Beyond that, there is the question of margins, where the broker said the market may be underestimating the impact of lower-margin institutional sales, which it expects to rise, while forecasting weakness in higher-margin private client sales.
Of the stocks it covers, Morgan Stanley said Schroders was the best play on a recovering risk appetite. "Schroders has a broad product suite and strong performance across the board," the broker said, reiterating its "overweight" stance and raising its target price for the stock to 1465p. At the close, Schroders was 11p ahead at 1335p, while Man, which was moved to "equal weight" with a 340p target from "overweight" with a 400p target, fell to 319.8p, a fall of 2.3 per cent or 7.6p.
Overall, the benchmark FTSE 100 index spent much of the morning and early afternoon deep in the red, touching a session low of 5,494.79, before bouncing back and closing 7.52 points higher at 5,534.24 as broker support and weakness in the US dollar boosted commodity-related stocks. The mid-cap FTSE 250 index rose by 58.67 points to 9,689.05.
The greenback was depressed by December's US non-farm payrolls report, which showed a sharp and unexpected decline in jobs. Employers shed 85,000 jobs last month, though previous figures were revised to show that the American economy added 4,000 jobs in November. Initial figures had pointed to a decline of 11,000 jobs in November, with analysts predicting no change for December.
Currency movements supported dollar-denominated commodities, which in turn limited losses in the mining sector. Xstrata was among the strongest, gaining 28p to close at 1246.5p, while Kazakhmys rose by 2.5 per cent, or 36p, to 1499p. Fresnillo gained 13p to 866p. Eurasian Natural Resources Corporation led the way, rallying by more than 5 per cent, or 51p, to 1034p after Royal Bank of Scotland switched its stance to "buy" from "hold" in a sector round-up. The broker said Vedanta Resources, up 51p at 2886p, and Rio Tinto, up 1p at 3638.5p, were its top picks for 2010, closely followed by Xstrata and ENRC.
"These four stocks were the top performers for 2009 and we think they stand a good chance of remaining top performers in the coming year," RBS analysts said. "They remain the four cheapest stocks on both out own and spot market forecast valuations, with Vedanta and Rio Tinto having the best year on year forecast earnings leverage going into 2011."
Around financials, Royal Bank of Scotland, which announced the sale of its non-core asset management business to Aberdeen Asset Management, continued to slide, retreating by another 2.1 per cent, or 0.75p, to 35.12p. Barclays went the other way, strengthening by 5.05p to 320.55p after UBS moved the stock from "neutral" to "buy". "With Barclays the only member of its international peer group trading below tangible book, we see value in the shares," the broker said, raising its target price from 307p to 392p.
Further afield, the engineering company Tomkins rallied by almost 3 per cent, or 5.6p, to 212p amid rumours of bid interest from private equity investors. The suitors were unnamed and some traders, citing the numerous reports about the stock that have surfaced in recent months, expressed scepticism at the idea. Speculators persisted nonetheless, chattering about a possible offer price of up to 260p per share.
Elsewhere, the inter dealer broker Tullett Prebon was 4.6 per cent, or 13.6p, higher at 309p after Noble upped the stock to "positive", abandoning the "neutral" stance it adopted after Tullett announced losses of staff to BGC in November. "Since then Tullett's share price has declined by 26 per cent compared to an average 8 per cent increase in the share prices of its peers," Noble said. "Given that the fundamentals for Tullett and other interdealer brokers have barely changed in the past two months, most of the decline in Tullett's share price can be attributed to change in sentiment."
Also on the upside, Seymour Pierce boosted sentiment around the IT specialist Logica, which rose 1.1p to 123.3p after the broker revised its stance to "buy" with a 140p target price. Seymour Pierce said the impact of the upcoming election on the public sector business would be limited, while elsewhere it expected to see the first signs of a pick-up in IT spending in 2010. It added: "Logica ought to see some recovery in its consulting and professional services business as as a result."
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