Home sweet home

Market analyst Regina Meani discusses Genworth Mortgage Insurance Australia (ASX:GMA).

In recent weeks there has been much talk about interest rates and the consensus seems to be that rates will rise in 2022. This sends us all scurrying to ensure that we have the best deal on our mortgages and other lending facilities. Genworth is a leading provider of Lenders Mortgage Insurance in Australia. They also provide tailored risk and capital management solutions for lenders in the Australian residential mortgage market complementing their traditional Lenders Mortgage Insurance product.

Lenders Mortgage Insurance (LMI) transfers the risk from lenders to LMI providers, largely for high loan-to-value ratio residential mortgage loans. The company believes that the facilitation of the product has contributed to the high levels of Australian home ownership and residential mortgage loan accessibility, and thereby actively supporting the housing market in Australia.

The share price for Genworth (ASX: GMA $2.99) has led a volatile path, experiencing a peak at $4.37 in November 2019 and a low point at $1.22 in March 2020. Ahead of the peak and rapid decline, it could be said that the price had a range roughly between $2.00 and $3.10 with an outside barrier zone at $3.50-70. The rise to the peak price through $4.00 pushed momentum to high levels, indicating the action was unsustainable.

The plummet to the low in March 2020 took the price outside its “comfort range” again but this time on the downside of the range, registering deeply oversold. The price rebounded quickly but the recovery proved vulnerable to resistance and halted in buying exhaustion around $2.40 in the first half of 2020. The price fell to retest the lows in September of that year and turned favourably from a higher position just above $1.30.

The recovery since then has been a little turbulent reaching towards the $3.00-3.10 barrier zone and pulling back to the previous range support around $2.00. In 2022 the price has broken the downtrend line from the peak and forged higher to retackle the $3.00-3.10 zone. The price may continue to grapple with the barrier zone, which may stretch to $3.15-20, while maintaining the potential to break higher towards the top of the old range around $3.70 and possibly towards and beyond the peak.

Over the near term, a drop back beneath $2.90 would suggest that the churning beneath the barrier is likely to continue with a further drop below $2.75 deepening the phase. In this situation buying opportunities would develop in the old “comfort range” with mid-way support in the $2.40-60 area.