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fund managers get set to embrace shunned banks

Originally published on Australian Financial Review on 25 November 2020

[Adapted from Australian Financial Review ]

Institutional investors are set to ditch their long-held disdain for the banks, even as the sector’s share of the broader market index has almost halved over five years.

While a dramatic recovery in beatenup big bank stocks has helped the broader sharemarket towards its best month since 1988, investors and analysts say the rally has more legs as they prepare to shift from underweight to overweight position in the sector.

Robert Talevski of asset consultant Activus said some active managers they tracked ‘‘have started to increase their bank exposure, albeit from a low base’’, after long avoiding the sector.

‘‘With Australia’s residential property market improving strongly, mortgage applications up strongly and the continuation of the recovery of the broader Australian economy, these factors might support Australian banks and we could see a rebound in this sector,’’ he said.

An overweight position was paying off as bank stocks had gained over 30 per cent since late September.

And there were further gains for the major banks yesterday as they accounted for about a third of the sharemarket’s 1.3 per cent gain.

ANZ Banking Group led the charge, rising 3.1 per cent to $22.97. The other major lenders gained at least 2 per cent.

Mr Talevski said ANZ, National Australia Bank and Westpac were trading at or around the value of their assets, or book value.

‘‘That is well below the five-year average of around 1.5 times, which might be considered good value,’’ he said. ‘‘They’re also in better shape than many of their US counterparts.’’

Australia’s banks account for 18 per cent of the sharemarket index, but they had fallen as low as 15 per cent as recently as last month. A year ago, their weighting was as high as 20 per cent.

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