The sector was sold off hard today taking 53 points from the broader index, the average decline of the big 4 was 4.2%, a day like this hasn’t been seen since COVID took hold. UBS released a report this morning updating their sector views and as a consequence, downgraded Westpac (WBC) and upgraded ANZ which speaks to the relative performance between the 2 (WBC -6.11% v ANZ -2.29).
UBS flagged that their view towards the sector had ‘evolved’ since 1H22 – in other words, they’ve changed their mind and have now turned more cautious. They talk to the backdrop of higher interest rates and lower growth generally being negative for relative performance, saying “While we are confident in the overall banking sector, with rising interest rates providing a shock absorber for earnings, we are cautious on the potential for H2 share price and sector outperformance due to 1) higher than average market ratings (based on PE relative) and 2) near-term macroeconomic downside shocks.
Earlier in the week, MM wrote that we were cautious on the sector given weak seasonality – 3 of the big 4 had already traded ex-dividend and we generally see an air pocket in June / July as a consequence before buying on CBA leading up to their August dividend, which drags the sector higher. For now, that is our roadmap and while we have exposure to the banks, we are at ~10% in our growth portfolio & 12% in our Income Portfolio split between Commonwealth Bank (CBA) & Bank of QLD (BOQ).
