Investment perspectives: outlook for Australian banks
As the Australian share market enters bear territory, we discuss the implications for the major banks
In this video, we discuss the outlook for Australian banks following recent market movements, and identify opportunities for investors in this environment.
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
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.
Jeff Brunton, Investment Director, AMP Capital
Sonia Baillie, Head of Credit Research, AMP Capital
Tom Young, Portfolio Manager and Analyst, AMP Capital