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UPDATE 1-Australia's IAG changes tack on China, sends shares surging
October 15, 2015 / 1:35 AM / 2 years ago

UPDATE 1-Australia's IAG changes tack on China, sends shares surging

* IAG will not pursue further investment in China

* Says decision led by shareholder feedback

* Shares surge over 6 pct to 6-1/2 wk high (Adds shares, analyst comment)

By Swati Pandey

SYDNEY, Oct 15 (Reuters) - Insurance Australia Group Ltd , the country’s largest general insurer, said on Thursday that it plans to halt further investments in China, reversing a strategy it said it was persevering with just two months earlier.

Shares in the insurer, 3.7 percent owned by Warren Buffett’s Berkshire Hathaway Inc, surged over 6 percent on the news as investors cheered the decision.

IAG said the move, one of the rare cases of a big financial firm publicly throwing in the towel on China, was spurred by “recent market speculation and shareholder feedback”.

In a three-sentence statement, it said “after completing significant work on assessing the opportunities available, IAG has determined not to pursue further investment in China”.

IAG will continue to pursue growth in other Asian markets and its core businesses in Australia and New Zealand, retiring Chief Executive Officer Mike Wilkins said in the statement.

Thursday’s announcement marks a significant shift since Wilkins’s Aug. 21 remarks that the company was eyeing ways to achieve a national presence in China as it scaled back its investment in a regional Chinese insurer.

“I would call it de-risking,” said Sydney-based OptionsXpress analyst Ben Le Brun.

“There is a theory that China is some low hanging fruit and profits are easy to come by. That’s not always the case specially for Australian companies that don’t always have a proper understanding of the Chinese market.”

The move comes even as Australia is making efforts to open up trade with China after the two countries signed a trade agreement late last year.

Shares in IAG, which has a market value of A$12.2 billion ($8.93 billion), have fallen nearly 15 percent this year, underperforming the broader market’s 3.4 percent decline. ($1 = 1.3656 Australian dollars) (Reporting by Swati Pandey and Byron Kaye; Editing by Ryan Woo)

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