Recently, I was tempted to buy QBE, especially after commonwealth becomes a substantial holder and actually bought QBE at $10.91 part. Considering its forward P/E up to 8.
But, I sold my shares, 2 day laters, Just before the recent rise to $11.9. for the following reasons
1. Interest rate in most countries continue to show sign of decline, while the investment return starts to diminish, as US QE inflates the actual value of most of the investment. Low interest environment erodes insurance company profit
2. Analyze other insurance giants, such as ING and Allianz. Despite recent global stock rallies, their price is still trading at large discount to the peak in 2009 financial crisis(50% to 25% of peak price). It is a sign that insurance companies are struggling to pick up profitability, given that its business areas that the firm operates in is cyclically subject to unfavorable environment and higher uncertainty in claims. (IAG is a nice example of a profitable insurance, given its sector is generally more stable and profitable).
3. Global expansion proves to be a bad decision for QBE, after witnessing its US business losses. In comparison, Australia economy still remains more stable with attractive returns, despite the end of mining boom.
Thoughts: I can't really predict what QBE future lies in the next 5 years. So, I decided to sell my shares, about a month ago. For those, who has insight about the future trend, QBE could be a bargain.
QBE Price at posting:
$10.58 Sentiment: None Disclosure: Not Held
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