Are ASX Bank Stocks Cheap? Here’s a Reason to Be Sceptical

The Purge of ASX Bank Stocks - Aussie Big Four Banks

At time of writing, the Big Four banks are all up. These include Commonwealth Bank of Australia [ASX:CBA], Westpac Banking Corp [ASX:WBC], National Australia Bank Ltd [ASX:NAB], and Australia and New Zealand Banking Group Ltd [ASX:ANZ].

The CBA share price is up 2.01%, the WBC share price is up 3.09%, the NAB share price is up 3.1%, and the ANZ share price is up 2.84%.

You can see the performance of the S&P/ASX 200 Financials Index [XFJ] is lagging the ASX 200 [XJO], by a significant margin.

ASX XFJ Share Price Chart

Source: Market Index

This is in sharp contrast to the performance of the healthcare index [XHJ].

ASX XHJ Share Price Chart

Source: Market Index

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It sounds counter intuitive but it’s not

The healthcare index’s performance is not as surprising as you might think.

A number of companies have leapt into action during this pandemic, aiming to provide solutions.

Banks on the other hand…

They are usually the receptacles in which an economy’s woes accumulate.

So you may be thinking they are cheap now.

When I spoke to a normally very astute trader, he said:

I think if markets have another leg down, then you’d have to be looking at the banks as a great 5-10 year buy and hold proposition.

I’m not so sure…

Banks may not be as important as they once were

Our editor, Callum Newman recently raised the prospect of central bank backed digital currencies (CBDCs).

It is possible, with all the monetary lever-pulling going on inside central banks like the RBA, this is the logical next step.

I’d call it techno-monetary competition.

And it may leave the big banks in the lurch.

With a CBDC, it is conceivable you may not need a major bank in order to distribute it.

Meanwhile, there is a mountain of mortgages on these banks’ books that could come under pressure if disposable income doesn’t ratchet up quickly.

As a result, I’d be tempted to say the normally astute trader may be wrong.

Too many macro headwinds in the offing for the big banks.

Not least of which is the threat posed by technological advances.


Lachlann Tierney,
For Profit Watch

PS: Three Stocks You Must Watch Amidst the Coronavirus Meltdown.