Updated views on QBE given recent events

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Question asked 16/12/2023

Updated views on QBE given recent events

Hi MM, You stated on 30.11.23 that "we can see QBE testing below $14 over the coming months, which is a more optimum entry level for MM"; and today that "Insurance stocks were the key lags as lower interest rates are a negative headwind for earnings, QBE -2.63% the proxy here". QBE today dipped below $14 today, although closed above it. Given the Federal Reserve's interest rate decision early this morning and accompanying commentary, and the potential for lower interest rates etc., does this make you more cautious on buying into QBE? What approximate price would be enough for you to pull the trigger regardless of any such concerns? Dear James / Shawn, The price of QBE has been falling recently even though broker Target prices are well above the current price. If MM had a significant holding in QBE, would you be selling, holding or buying more? Thx John.

Answer

Hi Darren & John,

We updated our views on QBE in Friday’s AM report here – the main point being the tailwind of higher rates has turned as we have been consistently highlighting. Bond yields have fallen quickly, and we see no reason to stand in front of that momentum just yet. We will be interested in QBE if/when we feel bond yields have fallen far enough and expectations of rate cuts become excessive.

Regarding broker target prices, brokers don’t tend to pay a lot of attention to the Macro environment, they are more bottom up than top down. While broker prices are worth monitoring, analysts are very reactive by and large, and we actually use ‘consensus’ in a different way that you’d think. When analysts are all very universally positive on something, we believe it creates a risk around crowded positioning – QBE has been an obvious example of this. As one of the guys on the desk often says, Analyst’s make sheep look like independent thinkers!

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QBE Insurance Group Ltd (QBE)

LAST UPDATED 15/12/2023 21:35

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