Australian Investment Blog

How strong are the banks at present? The Australian Banking Index is finally enjoying some time in the sun rallying over 10% during the last month. Their results have not been as bad as feared by many and of course they received a big shot in the arm from the RBA when they lowered interest rates to 1.75%. Importantly the market is now factoring in over a 70% chance of another cut in 2016. Our local banks have endured a significant reality check since early 2015 correcting over 30% and putting some clear short term stress on many retail investor portfolios. Not surprisingly a significant percentage of the questions we receive at Market Matters concern the banks. We have been bullish our banks over recent weeks and thought today was an ideal time to quantify what we feel may come next from the back bone to the ASX200. ANZ have already gone ex-dividend this month and WBC / NAB will follow shortly so the sector is paying some excellent dividends for their loyal holders. Even after the recent rally NAB will yield + 10% fully franked over the next 12.5 months. It’s also important to note that In bear markets stocks regularly bounce over 35% of their decline which coincides with our minimum technical target area for the banks ~8400 i.e. another 5% higher - see chart 1. ASX200 Banking Index Monthly