Commonwealth Bank - Another day, another record

For more than a year, ever since the Australian market began rallying, analysts have been calling it overpriced.

But Commonwealth Bank investors refuse to listen. The most expensive bank in the world’s highest priced banking sector this morning became even pricier, surging to a new record after opening at $74.50.

Spurred on by speculation the bank will lift its final dividend in its upcoming results – to be delivered on August 14 – CBA shares have charged higher since mid-June after global equity markets were rocked by fears the US was about to suspend its monetary stimulus.

CBA stock shed 9% during that period as global investors fled the Australian market to limit losses from a 12% drop in the currency.

In a low interest rate environment, however, the share price fall only enhanced the yield appeal for the bank and with the prospect that it may lift its payout ratio to 77% in the upcoming result, CBA stock has outperformed its peers in the past month.

CBA shares have outperformed the banking index by 5% and Westpac by 7% since early May. That gap with Westpac is now the greatest since last year’s results leading many analysts to declare the CBA rally now has run its course.

New lending remains anaemic, both for housing and business, and the economy has been cooling. The consensus among analysts is that without top line revenue growth, there is limited scope for further share price growth.

But the prospect of further cuts in official rates – driving more investors out of cash and back into equities – coupled with hopes that the lower dollar will inject life into corporate earnings and property prices has seen investors relentlessly piling into the stock (see John Abernethy's Bank stocks a hold strategy).