We have been providing investment planning services to clients in the Perth area since 2005 and have more than 40 years’ combined experience in the financial industry. We are now affiliated with AMP Capital, who provide us with even more resources to help us help you.
Recently, on the AMP Capital blog, Investment Director Jeff Brunton, Head of Credit Research Sonia Baillie and Portfolio Manager and Analyst Tom Young, all of AMP Capital, discussed the outlook for investing in banks from their respective perspectives. We would like to provide you with a “short version” of the information.*
In the last 12 months, the major banks have been under some pressure. For some of the banks, share valuation levels are similar to those during the Global Financial Crisis (GFC). During the same period, dividend yields of major banks have seen a rise of 2%. Share prices could become more volatile in the near future, as lower commodity prices and a housing market slowdown could exert a “drag” on earnings growth.*
Since the beginning of February, major bank credit spreads have undergone a sharp widening. On some securities, spreads are approaching their widest levels over a period of three years. There are three “drivers” for this widening.
Led by the commodity and energy sectors, there has been a global widening of credit spreads. The credit quality of European banks has caused concern among investors. In addition, new regulatory requirements are forcing banks to build their capital buffers.*
Opportunity or Risk?
The AMP Capital officers agree that the level of opportunity for shares of any bank are dependent upon the macro environment. In the credit market sector, Australian banks are receiving more attractive valuations, due to the widening of credit spreads, as medium term investments. However, the AMP Capital officers warn that “risk aversion is likely to remain elevated in the near term.”
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* AMP Capital. 11 February 2016. “Australian banks: equity and credit perspectives on market movement.”