I still think there might be Jim :-). I accept MA is a negative....

I still think there might be Jim .

I accept MA is a negative. But many times I’ve seen folks talk about “MA broken through” and then a few weeks later the opposite is true! Forgive me, but I’m always skeptical about calls made from charts.

I don’t think the recent share price decline is about the APRA news. I think that’s not a big deal. I think the fall is the usual reaction to bond yields falling. So let’s focus on the real impact of that upon QBE.

The first thing I want to highlight is that yields went up a long way before they fell. QBE share price went up with them, and has now retreated a bit as yields have fallen. But the yield is still quite satisfactory, ensuring a decent investment income return for QBE going forwards if yields stay around 4%.

Let’s try and quantify the impact on QBE’s profits of the fall in yields from 5% to 4%. I reckon that takes about $150-200 million off annual profit going forwards from 2024. But the impact on FY23 will be negligible…only the last two months of the year will be affected. And at the same time, QBE’s investment income from its risk assets
will have been recovering a bit…at least partially offsetting the unfavourable impact from the recent fall in bond yields for those two months.

So I reckon the FY23 profit will still be a very good result, largely unaffected by the recent fall in yields. At some point, investors are going to refocus on that coming profit, and the expectation of a strong dividend to go with it.

Even if bond yields slip further (very possible, even likely) I think the investment landscape has fundamentally changed. For a decade or more, QBE has struggled to achieve meaningful returns from investing its float. I think those days are gone. For the foreseeable future, it’s going to make decent investment income every year. Now, has this fundamental change in its prospects been fully reflected in its share price? It’s gone up somewhat from where it was, from a $9-12 range to a $13-16 range, but I personally don’t think that adjustment fully reflects the fundamentally more favourable environment QBE now finds itself in.

I think it is very possible we will see another clear step up in the QBE share price, which will occur when the short term focus on a fall in yields has abated, and focus returns to the fundamentally improved investment environment for QBE’s float, which should now generate decent investment returns year after year.

I place more weight on fundamentals like these than what others see in charts. I personally don’t think a breakdown in the MA can outweigh what is going on in the actual “money making”. At least, if one takes a medium term view of things. You may be quite right about the near term, of course.

Well, we are both holding it, so let’s both continue to do so. I think we have a lot to look forward to here…even if it does take until after Christmas to see it