Global markets were generally lower overnight with the energy sector weighing on markets as the price of oil continued to tumble. Interestingly the US Technology sector recovered some of its recent falls.
Both the Australian and NZ markets sold-off yesterday, following offshore leads. It was in fact the worst day for the ASX since the US Presidential election in November as the market experienced losses across the board, which we discuss further below.
Stock in Focus: QBE Insurance
QBE shares fell sharply yesterday as the company released a profit warning on lower than expected earnings due to higher to higher than expected claims in its emerging markets division during the first 5-months of 2017.
The shares were treated harshly and were likely hit harder during yesterday’s market pullback. However, investors seem concerned by the announcement and as to whether there are more to come, especially as QBE management failed to highlight the downgrade at their AGM a month ago.
QBE said the downgrade is due to a combination of increased frequency of medium sized risk claims in Asia, weather-related claims in Latin America and adverse experience in legacy portfolios in Latin America. It has been estimated that this could have about a 6% impact on earnings.
While the announcement is disappointing the factors above affecting QBE may only be temporary.
Members should lookout for our full update on QBE to be released in our next weekly report.
Australia & New Zealand Market Movers
The Australian share market experienced its worst trading day since November last year on Wednesday (ASX 200 index -1.6%) and there seem to have been a number of factors behind the decline. The fall in the oil price seems to be weighing on energy and resource stocks, with BHP being the largest drag on the market. There also seems to have been a bit of catch up with the US market retracement, and investor sentiment around the Banks, retail, and property risks remains nervous.
Another factor looks to have been offshore selling, as China’s inclusion into the MSCI Index (a widely followed global market index) may have prompted global funds to flow out of Australian stocks.
The New Zealand market joined the global sell-off yesterday (NZX 50 index -0.78%) led by Fletcher Building and Air New Zealand which gave back some of its recent gains in heavy trade. The news was not all negative, as Tourism Holdings shares gained +3% as it raised its earnings guidance and said annual profit will likely rise by about 21% as New Zealand continues to register record visitor numbers.
3 Things Markets Will be Watching this Week
1. The Reserve Bank of New Zealand makes an interest rate decision on Thursday.
2. Minutes from the last Reserve Bank of Australia meeting are released on Tuesday.
3. How the US Technology sector trades following its recent correction.
Have a Great Day,
Team