In this video, we discuss the outlook for Australian banks following recent market movements, and identify opportunities for investors in this environment.
Jeff Brunton, Investment Director, AMP Capital
Sonia Baillie, Head of Credit Research, AMP Capital
Tom Young, Portfolio Manager and Analyst, AMP Capital
The major banks have been under pressure for the past 12 months. Share valuations for some of the banks are now approaching valuation levels last seen during the Global Financial Crisis (GFC), while dividend yields for the major banks have risen by 2% over the past 12 months. A slowdown in the housing market and lower commodity prices are likely to drag earnings growth, causing more share price volatility in the near future.
Credit spreads of the major banks have widened sharply since the start of February, with spreads on some securities approaching their widest levels of the past three years. This widening has been driven by:
- The broader widening of global credit spreads, led by the energy and commodity sectors.
- Concerns about the credit quality of European banks.
- The need for the banks to continue to build their capital buffers in response to changing regulatory requirements.
Risk or opportunity
We believe the investment opportunity for bank shares depends on the macro environment. In credit markets, the widening of credit spreads for Australian banks has resulted in more attractive valuations over a medium term investment horizon. However, we are mindful that risk aversion is likely to remain elevated in the near term.
Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.