OPINION: The banks have been heavily sold off recently, as investors position for a severe credit crunch. But has the market got its timing and positioning wrong?
It’s become one of the go-to trades for ASX investors in times of economic uncertainty: sell the banks, beat the market.
will highlight that the well-flagged pressure on net interest margin is continuing, Sproules argues it’s unlikely to deliver too many other surprises, and bank dividends should hold up well.“Many might find that their current bank underweight position was too pre-programmed based on the last two downturns. If so, we believe this may turn into a significant pain trade, if the economy and the market continues to operate in a different way.
For starters, the overall economy is starting from a much stronger position, with modest leverage in the corporate sector, strong savings buffers and. But most importantly, the labour market is strong and likely to remain so, which has helped to keep forecasts for bad and doubtful debt on bank balance sheets very low.
But “portfolio positioning, especially in the banks, is preparing for a much more severe outcome like a credit crunch or a health crisis,” Sproules says.It’s fascinating that Sproules’ discussions with investors has shown they “are becoming very frustrated that the rapid rise to short-term rates has hardly made a crack in the leverage position of commercial property owners, householders or debt-heavy industries like 2008-09.