Understanding the value in the Australian Banks

The Australian Banks have gone from everybody’s best friend/safe bet, to the major underperformer as they have corrected over 18% in the blink of an eye – see charts 1 & 2. More importantly to us at Market Matters, they have gone from significantly overpriced to very interesting. Simply the recent increase in global interest rate has led to an aggressive sell off in the “yield play”, led by banks. This has led to banks now yielding close to 6% fully franked, compared to a 2% cash rate = very attractive. Early in 2015 we had classic “FOMO” (Fear of Missing Out) as almost every financial advisor in town was pushing retail investors out of low yielding cash into higher yielding bank stocks with almost no thought to potential capital losses – yields on the banks were closer to 4% as opposed to todays 6%. We wrote numerous reports around the risks associated with such a “crowded trade” and total complacency. If it was that easy, nobody would go to work. (VIEW LINK)