Macquarie bank has called an end to the Big Four Aussie banks’ yield driven rally following expectations that the US Federal Reserve will reduce its quantitative easing program. From Interest.co.nz:
…with financial markets undergoing a shift as investors speculate on the Fed tapering off its QE programme, the Macquarie analysts note the big banks share prices have fallen over the past month, and probably have further to go.
“As highlighted in our note ‘Value is in the eye of the beholder’ on April 4, we believed the sector was overvalued by as much as 30%+ in some areas. Since then the sector has pulled back by around 20%. Clearly a worst case ‘pre-QE’ scenario could see a further drop in share prices of around 15%,” the Macquarie analysts suggest.
In a low interest rate environment the Aussie banks have been attractive to investors because they pay out the bulk of their profits in dividends. There have also been special dividends and share buybacks…
The surge in big Aussie bank share prices has seen CBA’s market capitalisation surge above A$100 million making it one of the 10 biggest banks in the world by market cap and bigger than all of Germany’s banks combined. In fact, at the end of April the big four Aussie banks were all among the world’s top 11 banks by market cap, but ANZ and NAB have since dropped down, leaving CBA at six and Westpac ninth…
I will note that Macquarie’s analysis doesn’t take into consideration further downside risk in the event that the economy weakens and unemployment rises by more than expected as the mining boom unwinds (highly likely in my opinion).
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
