FIVE at FIVE AU: Another ASX record high: banks surge
Published: 22:23 07 Mar 2024 EST
The ASX is set to end the week on a strong note, with the ASX 200 trading more than 1% higher this afternoon. The market has been led by strength in the Financials and Energy sectors, although all 11 GICS sectors are in the green.
Banks lead Financials higher
The Financials sector was given a boost by the Commonwealth Bank, which set a fresh record high of $121.02, while NAB, Westpac, and ANZ each set new multi-year highs.
Brokerage firm Jarden expects the rally in major Australian banks to sustain its momentum. Jarden analysts say that despite a challenging earnings backdrop, earnings per share (EPS) revisions following recent results have been generally positive across the banking sector.
They suggest there’s potential for further upgrades as consensus forecasts adjust for reduced bad and doubtful debt, credit growth enhancements, and if funding costs remain stable.
This optimism is underpinned by a favourable macroeconomic environment and anticipated further EPS upgrades, hinting at continued outperformance of the banking sector. Although valuations are currently high, Jarden believes that the price earnings ratios within the banking sector are not excessively high.
Significantly, Jarden highlights the typical market outperformance of local bank stocks following interest rate cuts by the RBA, a scenario expected to play out in the latter half of 2024.
Noting the recovery in the housing market and substantial increase in new loan flows even before any rate cuts, it says much of the anticipated positive impact on bank valuations — from an improving macro environment and accelerating credit growth — may already be priced in.
Despite these considerations, Jarden is confident that Aussie banks will perform well post-RBA easing.
The State Street Institutional Investor Indicators
The State Street Risk Appetite Index rebounded to 0.18 from -0.09 revealing an improvement in risk bias across February.
The Institutional Investor Indicators measure investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors derived from State Street’s US$42 trillion in assets under custody and administration.
“Equity market returns were simply too good to miss in February,” said Michael Metcalfe, head of macro strategy at State Street Global Markets.
“After a cautious start to the year predicated by volatility in interest rate markets, institutional investors rediscovered their appetite for risky assets in February.
“Even though hopes of interest rate reductions have been pushed out to June and possibly beyond, the combination of low volatility and solid US growth has been sufficient on balance to encourage investors into riskier assets, especially in equity and FX markets.”
The State Street Holdings Indicators showed that long-term investor allocations to equities rose by 1.2 percentage points to 52.8%, funded by a 0.8 percentage point fall in cash holdings to 19.7% and a further 0.4 percentage point fall in fixed income allocations to 27.5%.
Metcalfe said that this marks the smallest overweight in cash in eight months and hints that investors ‘dry powder’ is beginning to run out.
Five at five
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On your six
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One to watch
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