Repricing Opportunity

What is a Repricing Opportunity?

A repricing opportunity is a change in the market environment that considers a reassessment of the value of an investment. This can occur with stocks, bonds or different types of investments. The change that hastens a repricing opportunity differ. Changes in interest rates, for instance, influence pretty much every type of asset and can set out repricing open doors in the banking and capital markets specifically.

Grasping Repricing Opportunities

The changes that lead to a repricing opportunity might be company specific, sector specific or market wide. In certain occurrences, the term repricing opportunity is utilized as a milder method for alluding to circumstances where an asset has seen a deteriorating in its fundamentals.

For instance, the oil price collapse in 2014 was a repricing opportunity for the whole upstream oil sector. While the oil prices were high, even companies with weak balance sheets and high costs-per-barrel were seeing profits. At the point when prices collapsed, a large segment of the market was creating to cover bills instead of to drive profits. This repricing opportunity drove numerous investors to reduce their exposure to the energy sector, something obviously displayed in benchmark exchange-traded funds like Vanguard's Energy ETF (VDE) which fell 45% from July 2014 and January 2016.

Industry Specific Repricing Opportunities

In business, there are two extra utilizations of repricing opportunity. In retail and sales, a repricing opportunity is encouraged when the interest for a product is a lot of lower or surprisingly high. At the point when the demand is surprisingly high, the product can be repriced higher to capture more profit. At the point when the demand is lower than projected, the product can be repriced downwards to empower more sales. The products being referred to are typically physical goods that have a shelf life, inventory cost or production lag that makes accurate pricing to the accessible volume important to the seller.

In the banking sector, repricing opportunities are periods when interest-rate sensitive assets and liabilities are up for adjustment. Banks earn income from interest, so their income vacillates with changes in interest rates. At the point when they issue loans or sell certificates of deposit, they install repricing opportunities into the contracts to consider periodic adjustment. This decreases the risks that the interest rate will go up or down in a manner that negatively influences the bank's return. A bank can limit its interest-rate risk and expand its net interest income by limiting the differences between its assets, for example, adjustable-rate mortgages, and its liabilities, for example, the rate of interest it pays on customer deposits or certificates of deposit, whenever these periodic repricing opportunities come up on the products.