The bank trade - why it's under pressure

James Gerrish

Market Matters

I've written numerous times about banks - the case for NOT being overweight the sector, and the risks inherent in a crowded trade. At the risk of repeating myself, banks offer non-defensive yield - given their earnings are tied to economic activity - which is weak. A lot of portfolio's that come across the desk are overweight the sector meaning they have significantly more than 28% of their balance in the big 4. Although banks are considered 'lower risk' investments, being overweight at this point in the cycle doesn't make sense. (given interest rates are at record lows, bad debt provisioning at record lows + wholesale funding costs at record lows). When these trends change, and they will, banks will experience an earnings headwind. The other interesting element to the bank trade is the impact of changing regulatory frameworks - specifically around capital requirements - more here (VIEW LINK)


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Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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