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Morgan Stanley sees further potential UK property fund stress

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UK property funds could come under further stress after a surge in redemptions following the country's vote to leave the European Union caused three asset managers freeze their holdings, Morgan Stanley said in a note to clients on Tuesday.

[JOHANNESBURG] UK property funds could come under further stress after a surge in redemptions following the country's vote to leave the European Union caused three asset managers freeze their holdings, Morgan Stanley said in a note to clients on Tuesday.

Fund suspensions "are designed as circuit-breakers, but the sentiment generated can still drive a negative feedback loop, in our view, similar to that seen during the last financial crisis," analysts including Anil Sharma wrote.

M&G Investments and Aviva Investors followed Standard Life Investments in halting redemptions from commercial-property funds that manage 9.1 billion pounds (S$16.2 billion) as the currency fell to a 31-year low and investors pulled out their money. The value of office properties in central London could fall by as much as 20 percent after Britain leaves the EU as companies consider moving to Europe or delay expansion plans in the UK, according to industry commentators.

Henderson Group Plc, Aberdeen Asset Management Plc and Schroders Plc have higher exposure to real estate compared with their peers, according to the note.

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"The UK's most prominent open property funds stopping withdrawals to try to avoid fire-sale type of liquidations have put market attention on the 45 per cent foreign participation within those funds," Morgan Stanley said in a separate note on Wednesday. "It underlined the significance" of sales of pound-denominated assets by overseas investors.

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