The Australian bank shares have been hit worse than the rest of the market in the Covid-19 market sell off. The reason for the sharp selloff and the tepid recovery in the ANZ stock price is that the banks are a leveraged bet on the Australian economy. At this point of the credit cycle with no material economic weakness for over two decades. Significant leverage is built into the systemic, making investors cautious in diving back to owning bank shares in the future.
One of the reasons ANZ’s share price has not fallen more is that its historical dividend yield is supporting it, and since mid-2020, the ANZ share price has been gradually recovering to its pre-covid levels.
The market is a forward discounting mechanism, which means it is always discounting or pricing at the share price to reflect what it is expecting in the future and, in this instance, what the post covid performance for the bank will be.
ANZ Dividend Yield
The most significant risk to ANZ stock price
The reality is once the government stimulus packages fade in late 2020 is that unemployment will inevitably increase, income will fall d this will put pressure on the bank’s bad debt provisions.
These are negative for the economy, but the flow on implication is that the largest risk to bank stocks like ANZ going forward is the fall in the house fall in house prices. The expected fall in property price is already seen from the share price falls in the ASX REITs.
Additionally, there will be concurrent headwinds from challenging corporate environments banks are facing higher capital requirements. All these factors are not conducive to earnings.
We are cautious in chasing yield here and avoid bank shares until there is greater visibility on the economic recovery and improvement in the credit outlook.
ANZ Stock Price vs Other Banks
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We listed the reasons ANZ was our preferred pick for the sector before the crisis, but the world has changed, and so has our view on bank stocks.
We have always preferred ANZ over the other big four banks (which makes up one of the largest shares of the Australia 200 Index) for investors that must include some Australian banking position in the portfolio.
Related: See our ASX ETF List for the list of market indexes that replicate the ASX 200 index’s performance.
1. Smallest the domestic Australian lending exposure relative to overall lending booking
2. Asia Regionalism model – bar current challenges from HSBC and Standard Chartered in the region. We prefer this over a pure domestic banking model (CBA).
The critical factor for the Australian banking sector is getting better visibility on bad credit charges. Home loans are a vital product segment for all major banks. Before covid, the banks like to note that their residential lending standards are conservative, and the next couple of earning results will show if this is true or not.
Time will tell if the decline in house prices that are slowing seeing will pressure bank balance sheets.
As the above mostly relates only to Australia. See below the detailed breakdown of the New Zealand business. It is the largest bank in NZ, so the broader weakness is a double pincer for sentiment in the future.
ANZ Dividend History
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ANZ Dividend Dates
Interim Ex-Dividend Date: May
Interim Record Date: May
Interim Dividend Payment Date: July
Final Ex-Dividend Date: November
Final Record Date: November
Final Dividend Payment Date: December