Bank investors get APRA wrong; and equity goes to war with debt over Trump

Christopher Joye

Coolabah Capital

In The AFR I reflect on the puzzling conflicts between the equity and debt market reactions to the emergence of President-elect Donald Trump: stock-jockies have ignored higher future interest rates---and hence a higher opportunity cost of capital used to discount listed company cash-flows back to the present day---and are instead focussing on the superior prospects for earnings given the assumptions of more expansionary fiscal policy and a strong deregulatory impulse for the banking system; at the same time, dour debt markets have murdered the value of fixed-rate bonds given the jump in long-term risk-free interest rates...I go on to explain that stockbrokers and equity investors have got APRA's recent pronouncements on bank capital totally wrong: contrary to absurd claims by some that the banks will not have to boost capital further, APRA's boss declared they must continue doing so and that they will be assessing capital levels using tougher benchmarks, like rating agency capital measures and stress-tests, which make current equity ratios look more run of the mill. Free (VIEW LINK)

Christopher Joye
Portfolio Manager & Chief Investment Officer
Coolabah Capital

Chris co-founded Coolabah in 2011, which today runs $7 billion with a team of 33 executives focussed on generating credit alpha from mispricings across fixed-income markets. In 2019, Chris was selected as one of FE fundinfo’s Top 10 “Alpha...

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