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Are Forex Exposure and Stiff Competition Stifling Manulife?

We issued an updated research report on Manulife Financial CorporationMFC on Sep 23, 2015.

Over the past several quarters, volatile global equity markets coupled with low bond yields resulted in enormous pressure on Manulife Financial's capital position. The company has been forced to raise its reserves to guarantee future liabilities, which in turn, drained its bottom line. We expect the global equity markets to remain weak and volatile in the near future. Therefore, we anticipate higher reserve charges for the company's equity-linked products, which will put further pressure on its earnings.

The company has made significant progress in reducing its stock market exposure, and to some extent, its interest rate exposure. Nonetheless, it remains more exposed than its peers.

Manulife draws a substantial portion of its earnings from the international market. Hence, the insurer's profitability is vulnerable to foreign exchange losses. The company's earnings recently suffered from the depreciating Japanese Yen. In an attempt to lower its forex exposure, the company incurred substantial hedging costs.

Moreover, earnings from Manulife Financial's U.S. division are being affected by lower interest rates. We expect soft earnings from both Canada and the U.S. division in the near term, given strong competitive pressures and a continued low interest rate environment.

However, the company's deep reach in the Asian market and a growing asset management business should drive long-term earnings growth. Manulife Financial also holds a significant market in Canada. Additionally, the Standard Life Oversea Holdings takeover broadened its share in the region.

Zacks Rank and Key Picks from the Sector

Manulife Financial presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the insurance space are Assured Guaranty Ltd. AGO , Primerica, Inc. PRI and StanCorp Financial Group Inc. SFG . While Assured Guaranty sports a Zacks Rank #1 (Strong Buy), Primerica and StanCorp Financial both hold a Zacks Rank #2 (Buy).

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STANCORP FNL CP (SFG): Free Stock Analysis Report

MANULIFE FINL (MFC): Free Stock Analysis Report

ASSURED GUARNTY (AGO): Free Stock Analysis Report

PRIMERICA INC (PRI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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