The Australian investment community is a curious beast – it blindly cheers companies doing well without question, then at the first hint of a problem, out comes the ‘sell orders’ and there’s a brutal realignment which quite often is nothing more than an overreaction by hedge funds looking for an easy turn in a falling market by shorting the shares in question.
Such was the case with Macquarie Group (MQG) yesterday.
For more than a year they have been cheering Macquarie Group and its consistent upgrading of its performance. That saw the bank’s share price pushed higher and higher to a peak of just over $84 last October.
But the shares then eased as financial markets grew choppy towards the end of 2015 and in to early 2016 as commodity prices (led by oil and iron ore) tanked, shares sold off, interest rates bounced around and volatility rose.
Yesterday Macquarie revealed that had had an impact – quite what it is in dollar terms we won’t know for a couple of months, but out came the ‘sell, sell’ orders and the shares were sold off quickly, despite a solid surge in the wider market (more optimism on oil and US monetary policy).
Macquarie’s ‘confession’ if you like was revealed in a quarterly trading update. It said that trading operations across the company “were satisfactory in the December 2015 quarter” and the banking group still expects its financial year 2016 result to be up on the previous year.
Normally that would have been taken as a given by investors and the shares probably pushed higher. But in the update, Macquarie mentioned that the increased market volatility has taken a toll on one of its best performing units – the commodities and financial markets group.
This group has been the second-biggest contributing unit to net profit – but has been performing worse than previously expected of late.
That compares to what Macquarie said in its October update when it said it expected the group’s result to be “broadly in line with FY15″ when it contributed $A800 million to the 2014-15 net profit. No longer, it seems.
Yesterday Macquarie said in the update that whilst YTD performance has been broadly in line with the previous corresponding period, it currently expects 4Q16 trading to be lower than 4Q15.
Macquarie yesterday also stuck with its October guidance that four of its other five main operating groups were supposed to deliver better performances in 2015-16 than in 2014-15 (corporate and asset finance expected, like commodities and financial markets, to be broadly in line).
“While the impact of future market conditions makes forecasting difficult, Macquarie currently expects the FY16 combined net profit contribution from operating groups to be up on FY15,” Macquarie’s statement said.
The investment group says it still expects its second half net profit to beat the $926 million earned in the same period a year ago, despite a mixed performance among its businesses.
Macquarie made a profit of $1.07 billion in the first half to September 30, meaning it is well placed to exceed its 2008 record profit of $1.8 billion in the year to the end of March. Investors ignored that assurance and looked at the performance of the commodities and financial markets business and went ’sell’.
Down went the shares – falling nearly 10% in early trading, before cooler heads prevailed and the losses were retraced as the broader market kicked strongly higher.
By the close Macquarie shares were down 5% at $65.33 which is still a long way down from the October high. Some early sellers (shorters) made money, some not so clever lost money. Others who didn’t trade were bemused.
MQG 1Y – Satisfactory Macquarie not good enough for the market