To short or go long the banks, that is the question!

From Goldman Sachs:

Tracking recent sector performance: Since the beginning of August, Australian banks are down 13.9% and have underperformed the ASX200 by 2.9%. As a result, the premium to fundamental valuations (and historical averages), which the sector has enjoyed on many measures since 2013, has more than dissipated.

Valuation drivers still intact, in our view: We think yield appeal, earnings defensiveness and sustainable returns have been the biggest drivers of sector outperformance in recent years. Apart from more definitive signs through the August reporting season that the credit cycle has troughed, we do not believe there has been any material shift in these underlying drivers.

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.