Morning Note: Market news and an update from Prudential.

Market News

US equity markets ended last week on a muted note – S&P 500 (-0.2%), Nasdaq (-0.2%) – with semiconductor stocks driving losses. Meta held talks with Apple about integrating its generative AI model into Apple Intelligence, the WSJ reported.

This morning in Asia, markets were mixed: Nikkei 225 (+0.5%); Hang Seng (-0.8%); Shanghai Composite (-1.2%). The Japanese yen was below 160 per dollar as top currency official Masato Kanda said authorities are ready to intervene to support it 24-hours a day, if needed.

The FTSE 100 is currently trading 0.2% lower at 8,222. The next UK government is set to face an 18-month worsening of the Misery Index, as rising joblessness outweighs slowing inflation, observers said. Sterling currently buys $1.2648 and €1.1814.

Moody’s Analytics’ chief economist Mark Zandi has warned of an impending recession and urged the Federal Reserve to cut interest rates. The 10-year Treasury currently yields 4.25%, gold slipped back to $2,323 an ounce.

National Rally cemented its lead in surveys a week before France’s election. Elabe showed the right-wing bloc at 36%, the leftist New Popular Front at 27% and Emmanuel Macron’s centrists at 20%. The president’s approval rating fell to 28% in an Ipsos poll. The spread between French and German 10-year yields, a key measure of France’s credit risk, has narrowed towards 70 basis points after reaching a 7-year high of nearly 80 basis points last week.

Iron ore has fallen to its lowest level since early April on concerns that China will struggle to resolve its property crisis and as global supplies remain plentiful. The oil price trades at $85 a barrel.

Source: Bloomberg

Company News

Prudential has today released a capital management update and launched a new $2bn share buyback programme. In response, the shares are trading 5% higher this morning.

Prudential provides life and health insurance and asset management in 24 markets across Asia and Africa. The business has dual primary listings in Hong Kong and London. The company is not affiliated with Prudential Financial Inc., a company whose principal place of business is in the US, nor with The Prudential Assurance Company Limited, a subsidiary of M&G plc, a company incorporated in the UK which was demerged from Prudential in 2019 and is now listed in London.

As a diversified international operator, with strong branding, leadership positions, and distribution channels, Prudential is expected to benefit from the favourable structural opportunities in its key markets driven by a growing middle class and ageing population. The company operates in markets with a combined population of four billion people that are expected to collectively generate incremental annual gross written premiums of almost $1 trillion in 2033 compared with 2022.

Last year, the company set out its 2027 financial and strategic objectives, one of which is to grow new business profit at a compound annual rate of 15%-20%. The group is also aiming to deliver double-digit compound annual growth in operating free surplus generated from in-force insurance and asset management business.

The group’s financial position is very robust with a strong capital base to fund growth. The company prioritises investment in organic new business at attractive returns and in enhancing its capabilities as it executes its strategy. Prudential will pursue selective partnership opportunities to accelerate growth in its key markets. Investment decisions will be judged against the alternative of returning surplus capital to shareholders.

Prudential’s historic focus on ‘with profit’ savings, unit-linked, and health and protection business results in a relatively low volatility of free surplus to stress events. Based on the company’s current risk profile and its business units’ applicable capital regimes, Prudential seeks to operate with a free surplus ratio of between 175%-200%. If the free surplus ratio is above the operating range over the medium term, and considering opportunities to reinvest at appropriate returns and allowing for market conditions, capital will be returned to shareholders.

At the end of 2023, the free surplus ratio was 242%.  Accordingly, and after taking into account the recent dividend, the company has today announced a $2bn share buyback programme to be completed by no later than mid-2026. Progress towards its financial objectives will increase the potential for further cash returns to shareholders. The group’s dividend policy remains unchanged, with the 2024 payout expected to grow by 7%-9%.

The company also provided some guidance on current trading, highlighting that the outperformance in H1 2023 when the border between Hong Kong and the Chinese Mainland reopened results in a strong comparator for H1 2024. Q2 2024 APE sales trends are similar to those in Q1 2024. Overall, the company has confidence in its full-year new business growth. The H1 results will be released on 28 August.

Source: Bloomberg