QBE shock and China CPI weigh on stocks

A SURPRISE profit warning from QBE Insurance and disappointing data from China helped pull the sharemarket slightly lower yesterday, snapping a

By InvestSMART · 13 Jan 2012

By InvestSMART ·
13 Jan 2012

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A SURPRISE profit warning from QBE Insurance and disappointing data from China helped pull the sharemarket slightly lower yesterday, snapping a two-day rally.

Shares in the big insurer plummeted to an eight-year low after it said after-tax profit for calendar 2011 could halve due to a record level of claims from natural disasters.

The stock ended down 12.7 per cent at $11.35, accounting for up to a fifth of the market's fall for the day.

"There won't be too many brave investors stepping in to catch this falling knife," said City Index chief market analyst Peter Esho.

At the market close, the S&P/ASX 200 Index was down 6.52 points, or 0.2 per cent, at 4181.

The other big drag on the benchmark was data showing that inflation in China Australia's largest trading partner had failed to fall below the 4 per cent forecast by economists.

Investors were looking to a meeting overnight of the European Central Bank that could produce a cut in interest rates to stimulate the region's ailing economy.

"There's definitely the expectation, that they'll move to lower the interest rates tonight," said Austock Securities senior client adviser Michael Heffernan.

Among yesterday's top gainers was embattled retailer Billabong, which rose 3 per cent to $1.865. Bargain-hunting investors swooped on the stock after holiday sales proved better than feared.

Consumer discretionary stocks were the among day's top performers, gaining

0.4 per cent. Myer rose

1.5 per cent to $2.06 and Harvey Norman closed

1.3 per cent higher at $1.98.

RBS Morgan Brisbane's director of equities, Bill Chatterton, said retailers looked cheap after a slew

of profit warnings sent

share prices crashing in

the run-up to Christmas.

Positive noises from fashion chain Noni B and interest from private equity groups was also spurring the sector. "It looks like the Christmas period wasn't catastrophic, so you might get a little bit of bounce back in some of those retailers," Mr Chatterton said.

Resource stocks ended higher, driven by a rise in metal prices. Rio Tinto finished with a gain of 0.8 per cent at $64.73 after the miner said it had taken complete ownership of Canadian uranium company Hathor Exploration.

Shares in mineral sands producer Iluka Resources, however, shed 1.2 per cent to $16.70 after it reported that production in the December quarter was down 5 per cent.

Gold continued its steady advance, with the spot price at the close up $US9.50 at $US1645.7 an ounce.

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Frequently Asked Questions about this Article…

Why did the ASX (S&P/ASX 200) slip yesterday and break a two-day rally?

The market fell slightly after a surprise profit warning from QBE Insurance and disappointing inflation data from China, which is Australia’s largest trading partner. The S&P/ASX 200 closed down 6.52 points (0.2%) at 4,181, with the QBE shock accounting for up to a fifth of the market's decline.

What was in QBE Insurance’s profit warning and how did investors react?

QBE said after-tax profit for calendar 2011 could halve because of a record level of claims from natural disasters. Investors reacted sharply: QBE shares plunged to an eight-year low, falling 12.7% to $11.35.

How did China’s inflation (CPI) report affect Australian stocks and investor sentiment?

China’s inflation failed to fall below the 4% forecast economists had expected, which disappointed markets. Because China is Australia’s biggest trading partner, the higher-than-expected CPI data weighed on sentiment and was cited as a drag on the benchmark index.

What were investors watching from the European Central Bank (ECB) and why did it matter?

Investors were watching an ECB meeting where a cut in interest rates was expected to help stimulate the region’s weak economy. The potential for lower European interest rates was part of the overnight market narrative and influenced global risk sentiment.

Which retail and consumer stocks moved, and what drove those moves?

Consumer discretionary stocks outperformed the day, up about 0.4%. Billabong rose 3% to $1.865 after holiday sales proved better than feared. Myer gained 1.5% to $2.06 and Harvey Norman climbed 1.3% to $1.98. RBS Morgan’s Bill Chatterton noted retailers looked cheap after a run of profit warnings, and positive signs from Noni B plus private equity interest were also helping the sector.

How did resource stocks perform and what company-specific news stood out?

Resource stocks ended higher overall on a rise in metal prices. Rio Tinto gained 0.8% to $64.73 after saying it had taken complete ownership of Canadian uranium company Hathor Exploration. By contrast, Iluka Resources fell 1.2% to $16.70 after reporting a 5% drop in production in the December quarter.

What happened to gold prices and what was the reported spot price?

Gold continued a steady advance during the session. The spot price was reported up US$9.50, at US$1,645.7 an ounce at the close.

After a big drop in QBE shares, is it a good idea for everyday investors to 'catch the falling knife'?

The article quotes City Index chief market analyst Peter Esho saying 'there won’t be too many brave investors stepping in to catch this falling knife,' signalling caution among market professionals. That reflects the sharp nature of QBE’s fall and the uncertainty around its profit outlook — factors everyday investors should consider before making a decision.