Macquarie upgrades Westpac to "outperform"

Macquarie Private Wealth recommends investors buy Westpac Banking Corporation following its underperformance lately, believing that the bank will have "safety appeal" as the economy slows later this year.

Macquarie thinks the bank's overweight position in retail and its high levels of capital will lure investors in a softening economic environment. 

Furthermore, its underperformance of between 4 and 13% compared to its peers – driven by fears that Westpac will "lay waste" to its margin to grow its mortgage business – while a convincing argument is unlikely, according to the broker.

"WBC is likely to use a more nuanced approach to get back to system growth which will have a smaller impact on profitability (<1% on earnings) and more spread out over time," it said.

Macquarie moved to "outperform" from "neutral" and set a one-year forward price target on the stock of $32. Westpac is third on Macquarie's preference list for the big banks, with National Australia Bank and Australia and New Zealand Banking Group first and second respectively.

Westpac was up in early trade this morning, rising 1.43% to $30.50 at 1100 AEST.