Chart of the Week: Ongoing geopolitical uncertainties impact ASX’s largest sector
ASX listed asset managers see fund flows deteriorating.
This week’s Chart of the Week comes from Morningstar’s Australian Asset Managers Q2 2025 report. Morningstar’s Australian Equity Research team take a deep dive into the subsector of the ASX’s largest sector, financial services.
Our analysts believe that the US administration’s fickle stance on trade policy, geopolitical tensions, and supply chain disruptions create a challenging backdrop for capital markets.
Fund flows across our coverage deteriorated for the second quarter into March 2025, and we expect medium-term flows to be lumpier than before as tariff uncertainties persist and rate cuts become more volatile.
Cost management—such as fund consolidation or downsizing—will likely be a priority among asset managers. Total shareholder returns for most ASX-listed asset managers have lagged the S&P/ASX 200 Index since 2022, when interest rates began rising from historic lows.
For shares to gain momentum, lasting improvements in fund flows and operating margins are needed. Most ASX-listed asset managers have underperformed the ASX 200 Total Return Index since the start of 2025. Challenger CGF is the only notable outperformer, likely reflecting investor optimism on the potential for improved margins. GQG is broadly tracking the index, while others are underperforming due to firm-specific issues such as weak flows or waning corporate interest from suitors.
Morningstar’s analysts are circumspect on the flow outlook despite recovering investor sentiment from April lows. There are unresolved tariff uncertainties, and competition from passive options pose downside risk to earnings. They forecast marginal earnings decline for our coverage over the medium term.
Uncertainty stemming from US tariffs is reflected in ongoing trade negotiations, the risk of policy reversals, corporate disruption from supply chain realignments, and the potential for interest rates to remain elevated. This heightens the risk of earnings shocks.
The earnings hit from tariff ructions should be bearable this fiscal year but more broadly felt in fiscal 2026. Longer term, as rate cuts are priced in, volatility rises and competition plays out, we expect net flows to slow, with fee pressure and growth investments restraining earnings growth.
You’re able to find previous editions of Chart of the Week here.
