ASX to underperform US index by ~5% in quarter, watch for cuts to bank dividends

After the bank-led sell-off the ASX 200 has now underperformed the US S&P500 by more than 6.3% for the month to date. We still have a couple of days trading left, but for the quarter, the Aussie market is heading for a fall of around 5% against a US index which is flat. March is a tricky time for the banks, given that it is half-year reporting time for all except CBA (it is June 30). We have written here as far back as September <a href="" target="_blank" data-event-type="click" data-event="link_click">(VIEW LINK)</a> warning that dividend growth is slowing and indeed it is – a consensus of around 15 analysts on Bloomberg shows that dividends will be flat for 2016 (against earlier predictions of growth). But those forecasts were unlikely to have been updated across the board following the announcement by ANZ. In fact, flat would be an excellent outcome. Watch now as the spate of dividend downgrades – and indeed cuts - hits the market in the coming weeks.
Alex Pollak

Loftus Peak

In our view, the (global) weakness in financial markets this year has been about higher default rates in junk-bond portfolios and among the banks which are lenders to the resources and energy sector. So ANZ was right on cue.
This chimes in with our longish comment piece in the Financial Review's Boss Magazine (VIEW LINK) which looked at the addiction to bank franked dividends from a wholistic perspective. The very high concentration there and in resources stocks might not be the best bet for the coming few years. aussie banks.jpg


Alex Pollak
Loftus Peak

CIO of Loftus Peak, a specialist global fund manager with a track record of successful investment in some of the world's fastest-growing listed businesses.

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