Ord Minnett reveals its favourite ASX banking stock

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THE CALENDAR

The good news? There isn't a lot to watch next week. The bad news? The limited number of risk events doesn't mean you can sit back and relax. 

The Reserve Bank and the Bank of Canada both meet next week for the final time this year, and the wide expectation for the former is a 25 basis points hike in the cash rate. What is up for debate is whether this hike will be the last in the present cycle, or whether we'll see more hikes next year. (We should get a clear idea of that when the Q4 inflation print drops on January 27th.)

GDP is also on tap for Q3, with economists expecting another slow down - and if you believe the economists at NAB, it won't stop there either.

"On GDP we now expect growth to slow to below 1.0% over the next two years. This includes some very soft quarterly growth in the back end of 2023 and is well below trend growth of around 2.25-2.5%."

Definitely not what a politician needs to hear before Christmas.

STOCKS TO WATCH

And speaking of banks, Ord Minnett has re-rated and re-adjusted its views on the ASX banking sector ahead of the RBA's last meeting of the year. The major bank FY22 reporting season was one of the more positive of recent years, with net interest margins surprising to the upside on interest-rate leverage. Those interest rate rises are finally doing wonders for its balance sheet. Unfortunately for the sector, competition is increasing as are costs. 

In Ords' view, there are also only four more RBA hikes coming. That makes the case for owning a retail bank a little tougher as well. 

In light of this, here is their new preferred order of ASX banking stocks:

1. Macquarie Group (ASX: MQG) - is also the only major bank stock to earn a BUY rating.
2. National Australia Bank (ASX: NAB)
3. Judo Bank (ASX: JDO) - only fintech/non-Big Five bank to earn a BUY rating.
4. ANZ (ASX: ANZ)
5. Bendigo and Adelaide Bank (ASX: BEN)
6. Bank of Queensland (ASX: BOQ) 
7. Commonwealth Bank (ASX: CBA)

Finally, you will notice one name is not mentioned here and that's Westpac. Ords has a "restricted" view, meaning they can't cover the stock for legal or regulatory reasons.

THE CHART

The beauty of this time of year is we get more economic outlook projections for the year ahead. We've been through plenty of them already (Morgan Stanley, JP Morgan Asset Management, Deutsche Bank, TD Securities, and Macquarie) but another house has sent through their predictions - Citigroup.

And next year could be a tough one across a slew of economies. The UK is already in a recession, and the Bank of England thinks this latest recession could last two more years. The rest of the Eurozone will likely be in recession from this quarter. In the US, the team projects a recession will start in Q3 next year.

And unsurprisingly, the loosening economies (Japan and China) are not projected to be in a recession next year. Well, at least until it happens.

THE TWEET

Hans Lee wrote today's report.