Last week wasn’t a good one for the Aussie share market. The ASX was down following the banking sector’s massive losses. The sector underwent selloffs on the back of ANZ’s $2.5 billion capital raising scheme. That amounted to losses of over $27 billion in the space of a couple of days.
Having started slowly again on Monday, the ASX is now rebounding thanks to a resurgent banking sector. In Monday’s mid-afternoon trade, the benchmark S&P/ASX200 was up 0.5%. The All Ordinaries index was having a similar day, up 0.51% in by mid-Monday afternoon.
Leading the charge on the ASX was ANZ [ASX:ANZ]. Its shares rose 1.66% to $30.64 at 4:30pm AEST on Monday. That marks a big turnaround since last week. ANZ shares fell almost $3 between Wednesday and Friday. On Friday alone its stock plummeted by 7.5%.
But things are on the up for ANZ.
Citi [NYSE:C] upgraded ANZ’s stock from ‘neutral’ to ‘buy’. It’s set a price target of $34 for the bank. Following last week’s selloffs, Citi feels ANZ stock currently presents value for investors.
Citi is bullish on the prospects for the banking sector as a whole. Granted, it does believe dividend payout ratios across the banking sector remain high. But it says ANZ has scope to lower compared to other big banks. ANZ’s current dividend yield is 5.9%. That’s higher than all of the other big three banks.
However by mid-Monday afternoon NAB’s [ASX:NAB] stock wasn’t far behind ANZ’s, rising 1.52% to $33.32 a share.
Westpac [ASX:WBC] was marginally up, rising 1.02% to $32.68. Meanwhile, Commonwealth Bank [ASX:CBA] shares were up 1.03% to $82.14.
The right time to buy into banks on the ASX?
Last week’s selloffs mirrored those earlier in the year when NAB underwent its own capital raising scheme. As they’ve proven time and again, banking stocks are resilient. Investors concerned about dividends might have no reason to worry.
Here’s what stock market analyst Marcus Padley had to say:
‘Raising capital is prudent. It preserves, rather than damages, any dividend expectations. [It makes] banks ‘safer’ not more risky’.
He argues the banking sector has dividend yields over 8% after franking credits are accounted for. That means investors have little reason to fret about the side effects of capital raising. The build-up of capital across banks lowers the long-term risks for banks.
Mr Padley continues:
‘Don’t expect [the banks] to shoot the lights out on earnings prospects in the next results season. But don’t expect them to suffer anything more than a herd based hiccup. They will find their level. The question is not whether you sell but when do you buy.
The big banks have made a promising start to the week. Calls to buy will grow louder if the revival continues. What about investors currently sitting on banking stocks though? Mr Padley has a reassuring word for you too.
‘If you’ve already bought, relax.’
Contributor, Markets and Money
Banking stocks may rebound in the short term. But the long-term future of the ASX is up in the air. Things could be about to get much worse, and no sector will remain untouched.
Markets and Money’s Vern Gowdie says that the ASX is heading for a major correction in the very near future.
Vern is the award-winning Founder of the Gowdie Family Wealth advisory service. He’s been ranked as one of Australia’s Top 50 financial planners. Not only does Vern predict a major crash, but he’s convinced the ASX could lose as much as 90% of its $1.8 trillion market cap.
Vern wants to help you avoid this coming wealth destruction. That’s why he’s written ‘Five Fatal Stocks You Must Sell Now’. As a bonus, this free report will show you which five blue chip Aussie companies could destroy your portfolio. You almost certainly own one of them. To find out how to download the report, click here.