Asx Quizzes Qbe On Share Frenzy

Sydney Morning Herald

Saturday March 22, 2008

Danny John

HEAVY buying by institutional investors and hedge funds is thought to be behind a sudden spike in the share price of global insurer QBE which prompted an inquiry by the market regulator.

Investors ploughed into the stock over the last three trading days as QBE hit a two-year low of just $20 after falling nearly 40 per cent since the start of this year.

The drop has been even more significant - 30 per cent - over the past three weeks as hedge funds reduced their holdings.

Rumours of a possible takeover that went out over a financial news wire service fuelled the buying, but stockbrokers indicated that over-selling of the stock and its relative cheapness compared with the rest of the market were the more likely reasons for the large volumes seen since Monday.

Nearly 5 per cent of the insurer's shares changed hands as the stock rose 15 per cent between Tuesday and Thursday.

A rise of $1.44 to $21.70 on Wednesday was enough to trigger the interest of the ASX, which sent a "please explain" letter to QBE before a further $1.30 jump that saw the shares close for the Easter break at $23.

The company responded to the regulator's "speeding ticket" by saying it wasn't aware of any information which had not been announced to the market that would explain the large movement in its price. "In particular, QBE is not aware of a takeover approach as speculated by Dow Jones [news service]," it added.

While a fair amount of stock had been flushed out in the wider market falls since early January - during which QBE dropped from $33 after hitting a record $35.19 last September - there was still a shortage when buying started in earnest at the $20 mark. The price jumped as sellers were able to claim a relative premium in the demand for shares.

Brokers Goldman Sachs JBWere said QBE had been the "absolute stand-out" share to buy and was "as cheap as it will ever be" given its relative strength in the financial services sector, particularly compared with the woes experienced by rivals IAG and Suncorp.

Nonetheless, one of the company's biggest shareholders, fund manager Barclays Global Investors Australia, which has been dipping in and out of the stock over the past year while keeping its stake above the disclosable 5 per cent level, sold below that limit last week.

It has yet to notify the ASX whether it was part of the week's sustained buying, having offloaded almost 800,000 shares.