2 Hazardous Reasons To Sell Legal & General Group plc

In recent days I have looked at why I believe Legal & General Group (LSE: LGEN) (NASDAQOTH: LGGNY.US) is a fantastic stock selection (the original article can be viewed here).

But, of course, the world of investing is never black and white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors which could, in fact, push Legal & General’s share price lower.

Troubles persist on the Home Front

Although the UK would at first glance appear to be clicking through the gears of a strong financial recovery, there is still enough uncertainty in the machine to cast doubt over whether Legal & General can achieve the stunning growth rates which many forecasters assume.

The insurance giant pointed out during last month’s final results statement that “structural issues in the economy remain, for example low productivity levels, low real wage growth and sizeable government deficits, together with regulatory uncertainty.”

Given that Legal & General still generates the vast majority of profits from its home shores, signs of enduring economic difficulties here — and consequent implications on business confidence — could weigh heavily on future earnings.

… while concerns could also hamper new markets

Allied to this, Legal & General has also warned of the effect of wider market jitters on its operations further afield. The firm has seen business surge in new markets in recent times, and net inflows at LGIM International more than doubled to £15.7m during 2013. Total assets under management here now stand at £450m, up 11% from 2012 levels.

However, a number of wider macroeconomic issues continue to muddy the company’s earnings outlook for this year and beyond. More specifically, Legal & General warned that “inherent uncertainty as the ‘monetary methadone’ of QE [quantitative easing] is withdrawn, and the possibility of further ‘butterfly-wing’ effects for emerging markets and the Eurozone” remain massive risks during 2014.

Although the US Federal Reserve has already slowed the rate of money injections, the steady stream of patchy economic data continues to cast doubts over when the bank will next act and to what extent. With economic slowdown and inflation also stepping up in developing regions, new business at Legal & General could slow considerably in the near future.

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Royston does not own shares in Legal & General Group.