Are the banks a big short?

From Morgan Stanley:

Banks – After The Fall? The Australian Banks sector has underperformed the ASX 200 over thelast two months by ~10% as higher capital and tighter regulation seeearnings and dividend profiles flatten.Whileyield remains a support, weremain cautious with an UW sector bias: not only does capital/regulation remain a longer term issue but consensus earnings outlook fails to carry any slack should theeconomic backdrop deteriorate.

The recent re-rating has really only reversed the bounce from the last few rate cuts:

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So, are the banks in for a sustained period of under-performance? The only factor in the bank’s favour is more rate cuts, again boosting the yield trade, so I would not count them out yet (not least because it is the single most important valuation driver). But MS’s reasons are a pretty compelling description for why they’ve seen their peaks for the cycle:

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There’s plenty of time to climb into the great Australian bank short that is ahead. Lot’s of hedgies, for instance, wait for share prices to really roll over before they pile in. Others accumulate a strategic position on spikes.

Either way, what was a near perfect environment for high bank valuations over the past few years has soured materially.

Comments

  1. http://www.news.com.au/finance/economy/tony-abbott-says-his-daughter-proves-it-is-possible-for-young-people-to-get-on-the-property-ladder/story-fnu2pwk8-1227392710384
    “TONY Abbott is pointing to the real estate success of his daughter to show it’s not impossible for young people to buy a home while paying off university debt.

    The Prime Minister said one of his daughters had bought in Canberra, but conceded his other two were finding it harder to get into the market.

    Louise Abbott works in the Department of Foreign Affairs and Trade and appears to have benefited from a Canberra housing market wilting after widespread public service job cuts.”

    See some people aint “short” of a quid or two. 🙂

    • “Louise Abbott …. appears to have benefited from a Canberra housing market wilting”
      There will always be buyers on the way down. Louise might just have been one of them. TIme will show her where the ultimate bottom was. But what allowed her to buy? The market had ‘wilted’…..

  2. http://www.watoday.com.au/national/medicines-to-cost-more-and-healthcare-will-suffer-according-to-wikileaks-documents-20150610-ghkxp0.html

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    In the latest of a series of high profile leaks, WikiLeaks has published more draft treaty text from the controversial Trans Pacific Partnership (TPP) negotiations which the Abbott government claims will boost trade and investment across 40 per cent of the world economy.

    Trade and healthcare experts are deeply concerned that the TPP agreement has the potential to undermine Australia’s Pharmaceutical Benefits Scheme (PBS) and other similar health programs such as that administered by New Zealand’s Pharmaceutical Management Agency.
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    They say TPP countries will face a much greater risk that big pharmaceutical companies will contest government decisions relating to the listing or otherwise of medicines for reimbursement and engage in expensive litigation, with the result that consumers will pay more while corporate profits will be protected.

    The newly disclosed TPP draft annex sets ….

  3. “There’s plenty of time to climb into the great Australian bank short that is ahead.”

    Acolytes of MB, please tell me how to go about this/who to go see about implementing this strategy.

    • +1

      I have no idea on how to take advantage from this, or if it is even worth trying to do so for an average pleb like me

      • Josh Moorrees

        CFDs are another option although as mentioned losses can be high (as I am finding) due to that old chestnut: the market can stay irrational longer than you can stay solvent.

    • deano1213MEMBER

      I looked around and the best securities I found were exchange traded put options. I bought some over a couple of the big four, you can find them here. http://www.asx.com.au/asx/markets/optionPrices.do?by=underlyingCode&underlyingCode=wbc&expiryDate=&optionType=Put

      The downsides are that they’re incredibly illiquid and the strike prices and expiries are limited. But IMO if you’re much more bearish than the average person in the market (I sure am), they can offer far more leverage than you could prudently get with say a CFD without exposing yourself to a lot of downside.

  4. Just buy put options or write a call option. check out wikipedia. you need to write a letter to your online broker explaining how options work before they generally allow you to trade them. Remember over 80% of people who trade options loose money. It is not for the faint hearted. I think Genworth, Peet and Stockland are also great short opportunities. Remember too your losses when shorting can be infinite, so be careful! In saying all that this ship is going down. The hard bit is knowing when!

  5. Tassie TomMEMBER

    I’ve got a question that I don’t know the answer to – can anyone help me?

    Brazil has high interest rates, and going up. I think they have high interest rates because they have an inflation problem.

    My question: Why does Brazil have an inflation problem, and could whatever is happening there happen here?

    It’s related to the topic – if our interest rates are forced up due to inflation, then our banks are a really big short.