Big Banks Down Slightly, But ASX200 Banking Index Still Growing

The big banks didn’t have their best day on the ASX today. Between them, they shed between 0.2–0.7% off their value.

The Commonwealth Bank [ASX:CBA] was the biggest loser, down 0.32%, or $0.36 since yesterday. ANZ [ASX:ANZ] lost $0.06, trading at $32.63 per share. Westpac [ASX:WBC] had a similar day, losing $0.07, sitting on $34.79 near close of trade.

NAB’s [ASX:NAB] stock was the worst performing of the lot. It lost $0.23, experiencing a 0.66% decline since yesterday.

However, the longer-term trends for the big banks are more encouraging.  The banking sector continues to outperform other major sectors, like resources and industrials.

Since early June, the ASX200 banking index has grown by 9%. That compares favourably with the other sectors. The industrials index is up by only 2% in comparison. Meanwhile, the resource sector is down by 5% over the same period. With commodity prices still falling, the worse is yet to come for the resource sector.

But is the banking sector deserving of its recent boon? A 9% rise perhaps isn’t reflective of their true valuations. If Morgan Stanley’s figures are anything to go by, they might be overvalued at present.

Take a look at the price to earnings ratio of the big four banks.

The one-year forward P/E ratio across the banks is currently 13.6. That’s higher that the average P/E of 12 since 2010. CBA’s stock, in particular, might be expensive. Their P/E ratio, of 15.3, is above its historical average dating back to 2000. ANZ, on the other hand, is the cheapest. It’s P/E is roughly in line with its historic average, sitting at 11.9.

Meanwhile, the trailing price to book (P/B) average for all banks, at 2.3, is higher than the 1.9 average since 2010.  The higher the P/B ratio, the likelier it is that the stocks are overvalued.

As far as dividends go, the big banks are paying out smaller yields. Morgan Stanley notes that the one-year forward dividend yield is 5.5%. That’s markedly lower than the 6.2% average annual yields since 2010.

However, with the banking index growing by 9% since June, investors are clearly still enamoured with the banks. With other sectors, like materials in particular, in freefall, it’s not hard to see why.

Mat Spasic,

Contributor, Markets and Money

Markets and Money’s markets expert Vern Gowdie says 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.

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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