Munich Re results beat hopes, but is it enough to prompt a turnaround?

The German reinsurer has reported a drop in second-quarter profits, but the results beat analysts’ low expectations and its shares rose on the day of the results. But do the technical charts suggest the rise can continue? 

German flag
Source: Bloomberg

German reinsurer Munich Re has reported a 9% drop in second-quarter net profit, as it was hit by high claims for natural disasters like floods, wildfires and earthquakes, and by the costs of restructuring its Ergo insurance division. It was also hit by higher market volatility and the record-low interest rate environment, which Chief Executive Nikolaus von Bomhard said is a result of a worsening global risk situation.

Still, the drop in net profit to €974 million, from €1.07 billion a year earlier, and the fall in operating profit to €1.46 billion from €1.82 billion, still beat very low analysts’ expectations by a long way. Consensus expectations were for net profit of €469 million and operating profit of €870 million. The company’s shares were up 4.0% at €158.50 in the aftermath of the results, making it the best-performing stock in the DAX on the day.

Technical Analysis

Munich Re shares have been in a downtrend channel since April 2015 on the monthly chart, and the channel is still intact. One level to watch is the horizontal trendline at €140. The weighted 10 and 20-month averages crossed in June, and in April the moving average convergence / divergence (MACD) crossed below the zero mark. These are both bearish indicators. 

We’re currently seeing a bounce from support at €140.17, but there’s tough resistance at the moving averages we mentioned at €163.47 and €168.76. It would need a break above the upper boundary of downward channel, currently at €179, for the bearish outlook to come into question. 

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