Speaking at a media event on Tuesday, Alphinity principal Andrew Martin said that banks were facing several headwinds, the most prominent of which being the low growth rate the stocks are expected to show.
"Banks have no growth going forward, and when you look the dividends it’s no to negative growth for dividends going forward over this next phase. We really have gone from that stage where banks were in an upgrade cycle mostly because of improving credit quality; we’ve kind of hit that bottom and turned around,” he said.
“I don’t think credit quality is a massive issue, but it’s more of a headwind than a tailwind now, and that’s led to what we’ve seen as negative earnings revisions.”
Political risk has also increased in the last 6 months, Mr Martin said, and this too will impact how banks manage their business and their pricing, as will the “constant overhanging theme” of prudential regulation.
Additionally, as banks such as NAB and ANZ refocus their business on the Australian market, the competition between banks has also increased, Mr Martin said, evidenced by the Commonwealth Bank’s repricing of mortgages earlier this year.
Mr Martin cautioned that the only metric on which bank stocks appeared cheap was on a dividend basis, and that on a balance of risk, investors “probably want to be structurally underweight the banks over the next phase, over the next two-to-three years” and be choosy about picking the right banks.
“The retail banks, the higher return-on-equity returning banks have had it to themselves over the last few years as the other banks focused on other things,” he said.
“We think that’s changing, that that superior growth is coming to an end for those guys, and in that circumstance the banks that have individual cost stories, individual restructuring stories like a NAB or ANZ will probably get a lot more attention.”
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