What a day to own the banks!

James Gerrish

Market Matters

A huge day for some areas of the Australian market today, particularly the banking stocks and the private health insurers as they were aggressively singled out as net beneficiaries of the Coalition victory over the weekend. Westpac (WBC) closing 9.2% higher for its biggest one-day gain in almost 31 years shows how big the change in sentiment was today.

While the banks have most to gain from a Coalition win given that policies like capital gains tax reform, negative-gearing reform, and of course changes to franking credit legislation are now a distant memory, the strength in today’s buying was exceptionally strong. WBC was the best on ground, however ANZ added +7.78%, NAB added 7.9% & CBA was up 6.27% with the Big 4 banks accounting for ~87points or 80% of the day’s gains - banks, clearly the place to be. Sentiment is a very big influencer in the market, and the weekend’s victory by Scott Morrison could well be the sentiment circuit breaker in terms of consumer behaviour – from an investment perspective, from a consumer perspective and importantly, for the housing market.

Overall today, the ASX 200 added +110 points or +1.74% to 6476. Dow Futures are trading up +64pts / +0.25%.

ASX 200 Chart

ASX 200 Chart


Private health insurers Medibank (MPL), +11.46%, and NIB Holdings (NHF), +15.79%, also caught the tailwind of the surprise Coalition victory. Both names had been trading in a reasonably tight range since late April as investors mulled the cap on premium increases as proposed by the Labor party heading in to the election. With the cloud removed, the insurers rallied strongly to top the leader boards today. They also dragged private hospital stock Ramsay (RHC) +7.29% higher as investors bet on an easier negotiating path for the operator with the insurers. RHC has traded in a tight range in the lead up to the election, unable to move higher with the market pricing in the risk of costs rising above revenue growth in a low premium growth environment. We own NiB (NHF) in the Platinum Portfolio and enjoyed its run today. We remain bullish.

NiB Holdings (NHF)

Banks – a huge day from a sector perspective with the banks opening firm and staying that way into the close. WBC was the biggest contributor to the sector's gain, adding +9% - best gains in more than 30 years. Short covering clearly playing out as the change of government removes some of the headwinds facing the sector. I did hear numerous times around the office today that banks are still ‘no growth’ and this is a sell day, however it's worth remembering that sentiment is a very big component around investing, and a Coalition win has clearly improved overall sentiment – particularly towards the banks. The aggression in today’s buying looks to me like it has further to play out…

Westpac (WBC) Bank

Broker moves:

· NRW Holdings Downgraded to Neutral at UBS; PT A$3.10

· NRW Holdings Cut to Sell at Deutsche Bank; PT Set to A$2.31

· Vista Group Downgraded to Neutral at UBS; PT NZ$5.55

· James Hardie GDRs Downgraded to Neutral at UBS; PT A$19.60

· Qantas Upgraded to Outperform at Credit Suisse

· NAB Upgraded to Overweight at Morgan Stanley; PT A$25.70

· GWA Group Downgraded to Sell at Deutsche Bank; PT Set to A$2.85

· GWA Group Upgraded to Hold at Morningstar

· Ramsay Health Upgraded to Overweight at JPMorgan; PT A$75

· Lendlease Group Downgraded to Hold at Morningstar

· Pendal Group Downgraded to Hold at Morningstar

· Medibank Private Upgraded to Neutral at JPMorgan; PT A$3.05

· Virgin Australia Upgraded to Neutral at Credit Suisse; PT A$0.18

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James Gerrish
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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