Global markets were mixed overnight as the US S&P 500 index inched to a record high (+0.3%), with mega-cap technology stocks taking charge as investors weighed data showing a steady jobs market recovery against a rise in producer prices.
Supply chain disruptions are a well understood driver of current inflation pressures. On that front, Bloomberg reported that China had shut down a terminal which accounts for around a quarter of business at the world’s third busiest container ship port after a Covid-19 case was discovered. This is just a reminder that any easing in supply chain constraints will likely be a drawn-out process.
We have moved into the local earnings season in Australia & New Zealand, with the focus for investors shifting back to company announcements. On this front, it was a great day for 2 of our buy recommendations yesterday – Telstra and QBE which both jumped on their profit results.
QBE Insurance (QBE:ASX)
QBE shares jumped 8.1% yesterday as it increased revenue 14% in the first half of the year.
QBE said improved customer retention, a strong premium rate environment and investment income growth had brought about a profit rebound for the first half of 2021 compared to the same time last year. We see this as clear evidence of QBE's significant leverage to the strongest commercial premium rate cycle in the past decade. With strong premium rate momentum still to earn through, we see further profit margin growth ahead.
We remain BUY rated on QBE as it is still reasonably priced on a 13x price to earnings ratio, paying a dividend yield of 3%. Members should look out for a full update report on QBE in our weekly.
Australia & New Zealand Market Movers
The Australian market was a touch higher Thursday (ASX 200 index +0.1%) helped along by strong profit signals from blue chips on a busy day for earnings reports.
Telstra, one of the biggest companies in the benchmark, jumped 3.7% to $3.97 to a price not seen since the pandemic first struck financial markets. The company’s shares rose after it revealed a 3.4% cent rise in profits to $1.9 billion for the financial year that ended in June despite a dip in total income. Telstra also unveiled a $1.35 billion share buyback, which is roughly equivalent to half of the proceeds from selling a stake in its mobile phone tower network earlier this year.
Graincorp was another star performer. The company led the benchmark with a towering 11.7% advance after upgrading its profit guidance for the current financial year.
NAB was the only one of the big four to edge higher on the day following its June quarter results. The bank increased cash earnings more than 10% to $1.7 billion. The bank has also engaged in a hefty buyback, unveiling its own $2.5 billion share repurchase last month.
Mining giant Rio Tinto fell -6.88% after shares traded ex-dividend. Investors may also have been concerned by a plunging iron ore price.
The New Zealand market continued to underperform on Thursday (NZX 50 index -0.5%) as investors prepared themselves for earnings results and a monetary policy statement from the Reserve Bank of New Zealand next week. Fisher & Paykel Healthcare led the market lower for a second day, as the index’s biggest stock fell another 2.8% to $30.90.
Travel stocks saw little reaction to the government’s plan to cautiously reopen the borders throughout 2022, which will allow quarantine-free travel for vaccinated people from low-risk countries. People travelling from medium risk countries may be permitted to self-isolate at home, or have a shorter stay in a managed isolation facility.
Precinct Properties announced a 2021 result in-line versus expectations, with no change to its dividend per share guidance of 6.7 cents. The most important new information was the company’s desire to use third party capital to aid in the build out of its future development pipeline, reducing its own capital needs.
3 Things Markets will be Watching this Week
- Highlights this week include the latest inflation prints in the US and China.
- Earnings season across Australasia kicks into gear. Key names reporting this week include Aurizon, Suncorp, Transurban, Challenger, CBA, Computershare, James Hardie, IAG, Mineral Resources, Orica, ANZ Q1, AGL Energy, AMP, Downer, Goodman Group, Mirvac, QBE, Telstra and Precinct Properties.
- Ongoing commentary and reactions to the COVID delta variant remain in the headlines.