Australian Investment Blog

Is the “Big Switch” Unfolding before our eyes?

Major trends may last for many years, BUT they do not last forever. Commonwealth Bank (CBA) and BHP Billiton (BHP) have tracked each other extremely well for many years until the markets focused on free money in 2011 (chart 1). Since then, CBA has basically doubled and BHP has remained unchanged. However, is it time for investors to commence rebalancing their portfolios with many retail investors holding 80% of their funds in Banks and Telstra? Everybody knows that having all your eggs in one basket is very dangerous and people say they would never do it BUT investors forget too quickly and think it will be different this time when investing for pure yield – Banks & Telstra. This strategy may fail badly when interest rates rise and I believe US rates are turning higher – see chart 2. To me, watching the screens hour to hour, the cracks are already starting to appear. Over the last 5 days, banks are -1.2% but retail is +1.1%. Last night, Portugal’s largest listed bank plunged almost 20% after missing (delaying) some debt payments - the effect on local banks today will be interesting.