Deutsche Bank downgrades Hargreaves, Standard Life Aberdeen

Deutsche Bank downgraded a series of stocks on Monday as it cut its stance on European insurers to 'neutral' from 'overweight'.

"2018 has shown that the insurance sector can outperform a falling overall equity market – helped for most of the year by rising bond yields. In the last few weeks, however, bond yields have actually fallen back sharply, and - though our strategists forecast that they will rise from current levels - we expect the positive impact for insurers of any such rise to be offset by wider credit spreads and the associated potential for rising default rates further out," the bank said.

As far as UK stocks are concerned, it downgraded Hargreaves Lansdown to 'sell' from 'hold' and cut the price target to 1,500p from 1,900p, citing a rich valuation and arguing that retail investment sentiment in the UK will remain subdued due to ongoing political uncertainty, which in turn is likely to weigh on HL's net inflow rate.

"We expect Brexit uncertainty to continue into 1Q19 as the UK prepares to leave the EU on 29th March. This is significant as the 1Q of the calendar year is usually the busiest for HL due to the UK tax year-end in April."

DB noted that HL already reported a 16% drop in year-on-year net flows for the three months to September and said it expects a further deterioration to this trend. It expects net flows to decline by around 22% to £1.4bn for the three-month period to December 2018 and 21% for the four months to April to £2.6bn.

The bank downgraded St James's Place to 'hold' from 'buy' and reduced the price target to 1,090p from 1,280p, noting its exposure to both markets and UK political risk.

DB said that in a no-deal Brexit or in the event of a more radical UK government, SJP screens less well than some of its UK life assurance peers, with up to 20% further downside relative to its preferred stocks.

"The driver of this is the group’s high gearing to any slowdown in gross sales growth," it said.

Finally, Standard Life Aberdeen was cut to 'hold' from 'buy', with the target price trimmed to 295p from 405p, also due to its exposure to markets and UK political risk. In addition, DB pointed to the fact that Standard Life faces bottom-up headwinds in the form of persistent net outflows from some of its highest margin funds.