Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi Team - love your honest and transparent appraisal of the market and your portfolios. Keep doing what you are doing. My question is around why the banks are so so strong. As you say, analysts have been bearish for a long time, is there anything further you can put your finger on. Thanks
Hi Heather,
They have surprised many, MM included, though we still have some exposure here and overseas. A theme in the market is clearly around safety and certainty, and paying a premium for those traits; it’s something we’re written about, while anything less safe, more cyclical is getting kicked to the kerb. Westpac (WBC) for instance is up 50% over the past year while BHP is down 16% – a huge differential.
A more concrete economic reason though, is loan growth. The Australian Bureau of Statistics (ABS) Lending Indicators for July 2024 were just released, and the data was strong.
In July 2024, new loan commitments (seasonally adjusted):
Past trends show a reasonable correlation (~70%) between share price performance of Australian banks and growth/volume of loans written – which makes economic sense. We’d also think that lower rates could stoke further loan growth as long as employment holds up i.e. it’s hard to paint a bearish picture on the sector for now.
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