China stimulus hopes lift markets, Sports Direct delays results and there is disappointment for insurers

“News that China’s economy is growing at its slowest pace since the 1990s has failed to trouble investors, perhaps as there had already been plenty of signs to suggest the Asian powerhouse is finding life a bit harder,” comments Russ Mould, Investment Director at AJ Bell.

“Interestingly commodity producers are among the FTSE’s top risers, suggesting that investors do not believe China’s appetite for raw materials is going to wane.
“Weak economic figures tend to stir the belief that the China government will unveil more stimulus measures to fuel the economy. “The FTSE 100 advanced 0.1% to 7,514 in early trading on Monday, with markets across Europe also rising. Hong Kong’s Hang Seng index jumped 0.2% and China’s SSE Composite index traded 0.4% higher.’”

Sports Direct

“Traditionally a company delaying publication of its financial results has been a bad sign. It has often involved said company finding problems in their accounts and issuing a profit warning.

“In Sports Direct’s case, the delay to its results may not necessarily be bad news. There has been a growing trend this year for auditors to take longer to sign off the accounts, principally because they are under increasing pressure to make sure they don’t miss any nasty items and to ensure the audit is done properly.

“It stems from a succession of companies revealing major accounting flaws in recent years with auditors having initially failed to spot the issues. BHS and Patisserie are two examples where problems were originally missed.

“The Financial Reporting Council last week found that none of the big four auditors – EY, KPMG, Deloitte and PWC, met its 90% target of audits being assessed as good quality. A quarter of assessed audits were found to be below an acceptable standard.

“Sports Direct has blamed its delay on complexities with integrating House of Fraser into the group, uncertainty as to the future trading performance of this business, and increased regulatory scrutiny of auditors.

“Photo-Me last week delayed the publication of its accounts to give its auditor more time to complete its work. And in June Superdry delayed its results by a week so it could have more time to calculate an impairment provision as part of restructuring work.”

Insurers

“Being at the mercy of the government and/or regulators is never a great place to be, as shareholders in insurance stocks are learning to their cost.

“New rules governing how much people can claim in damages after serious accidents will reduce how much insurers have to pay out, but, crucially, not as much as investors had hoped.

“Essentially a 2017 decision to drastically reduce the assumed returns claimants can earn on a lump sum has been walked back a bit but the industry’s disappointment in today’s outcome is still palpable. Analysts had certainly pencilled in a more favourable settlement.

“This shows how difficult it can be to second guess a regulatory outcome. It also feels like the last thing general insurance businesses needed.

“They are already facing increased competition, rising claims and the need to hold more capital to meet future claims.

“At the very least recent developments may put the brakes on the generous dividends these firms have paid in the past, particularly when you consider an FCA probe could place further pressure on premiums as the difference between what new and existing customers are charged is challenged.

“Putting your trust in the income from the insurance sector increasingly looks like an accident waiting to happen.”

These articles are for information purposes only and are not a personal recommendation or advice.