The Gulf Time Newspaper One of the finest business newspapers in the UAE brought to you by our professional writers and editors.
Bloomberg
Bank stocks down under have seen about $32 billion of market capitalisation erased this week on growing concerns that faster monetary policy tightening might increase housing-market risks and pressure valuations.
Shares of the country’s four largest lenders will struggle to outperform given elevated price-earnings ratios and downside risks from the macro-economy, UBS Group AG analyst John Storey wrote in a note. A “quick and aggressive†tightening period from the nation’s central bank could induce a weaker housing market and greater recession risk, Morgan Stanley analysts led by Richard E Wiles said.
With the housing market already cooling and forecasts for further declines, this week’s larger-than-expected 50 basis-point lift by the Reserve Bank of Australia (RBA) is forcing a reassessment on the trajectory of bank earnings. While margins at lenders closely tied to the mortgage market get a boost from higher rates, pressure on the consumer is coming from inflation and borrowing costs that are increasing at a faster pace.
Bank shares historically underperform relative to the broader equity market during periods of high inflation and low growth, UBS noted in its report.
Commonwealth Bank of Australia falls 2.4% as of 1:09 pm in Sydney on Thursday, down 9.6% this week. National Australia Bank Ltd dropped 9.5% since the weekend, with Westpac Banking Corp shedding 11% in that time. Australia & New Zealand Banking Group Ltd. (ANZ) has lost 6.2% this week.
This week’s slide has shaved about A$44.4 billion ($32 billion) from the group’s collective market capitalisation. The selloff also puts the benchmark S&P/ASX 200 Index’s financial shares on course for their worst week since March 2020.