Investors strapped themselves in for what appeared to be another downhill slide in the stock market. Especially, as the market experienced its worst day on Monday since the GFC, falling 7.3%. However, the ASX 200 rebounded from yesterday’s sell-off, climbing 6.46%. Amidst today’s recovery, our four big banks posted some impressive returns.
National Australia Bank (ASX: NAB) up 10.6%
Commonwealth Bank Australia (ASX: CBA) up 10.5%
Westpac Banking Corp (ASX: WBC) up 9.38%
Australia and New Zealand Banking Group (ASX: ANZ) up 8.5%
Depositing your hard-earned money into a bank account may not be the wisest investment. Because of the low-interest rates. However, investing in the four big banks when the market is low could provide a return on investment that could make your current interest rates seem worthless.
Today we are discussing why the four banks surged today and whether they are a safe investment considering the current market conditions?
Why did the Big Four banks surge today ?
To the smart investor, today’s surge in the Big four should not come as a surprise. Why? Because during yesterday’s bloodbath our Aussie banks were pulled down to record lows, close to their GFC share price.
In turn, opportunists saw yesterday’s meltdown as an opportunity to buy in when the market was low. Which explains, why investors rallied behind the Big Four today, driving the stock price up. The table below summarises yesterday and today’s movements.
Personally, today and yesterday feel and looks like fear and greed on steroids. On the left side, we have the coronavirus pulling the banks into the red zone. In which, investors fear they will lose more money (loss aversion), panic and thus causing a massive sell-off.
Contrast yesterday’s fear to today’s market activity. Where opportunists realise the banks hit a resilience point. Meaning, there was a high chance the market would bounce back up. In turn, causing most investors to get back into the market to make money. Reflecting the greed element of the stock market.
Are the ‘Big Four Banks’ worth the investment?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
Personally, I would have snapped up some banking shares today if I had the capital. Especially, with the coronavirus pushing our banks into the 52-week record lows while the dividend yield on each of the big four is hitting record highs.
Moreover, the big four are being forced by the Australian Prudential Regulation Authority (APRA) to increase their Common Equity Tier 1 (CET1) ratio. Essentially the ratio requires the bank to store additional funds. In turn, with extra capital the banks, which are of vital importance to the Australian economy, stay strong in bad times.
However, the RBA’s recent slashing of interest rate could impact the Big Four’s profitability. Moreover, if housing prices were to be affected in any way the banks profitability would suffer a further blow. Also, it would be smart to forecast a potential dividend trim from the big four.
In saying all that, it seems coronavirus is creating nice entry points for opportunists. The question you need to ask yourself is do you see the Big Four still standing in the next 5 years even if a financial crisis occurs?
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG