Market likely to test new five-year highs Stocks Banks drive gains
ANZ, which is due to report its earnings on Tuesday, saw its market capitalisation rise to a record high of $89.6 billion on Friday. Commonwealth Bank shares rose to $76.28 as its market cap hit $122.9 billion.
Westpac shares were also at record levels, closing last week at $34.36 for a market capitalisation of $106.8 billion. And NAB, which will report its earnings on Friday, rose to an almost six-year high of $36.08.
The stellar performances by the banks helped the market close at a new five-year high on Friday, its third straight week of gains.
The benchmark S&P/ASX 200 index is already up 14.46 per cent this year, and is closing in on the gains of 4.6 per cent recorded last year.
Local stocks were poised to begin the week in positive territory, with the SPI futures index up 33 points to 5418.
"The income investors have been very happy," Patersons Securities strategist Tony Farnham said on banking stocks.
Analysts said investors were drawn to the big banks' earnings growth, which were seen as reliable. The steady growth in earnings has also led to a rise in dividends, while those with excess capital have passed some of that back to shareholders through increased payout ratios.
Both ANZ and NAB are forecast to report a 10 per cent rise in earnings this week.
The steady rise in the share prices has continued a debate over whether banking stocks are overvalued or about to reach their peak.
Mr Farnham said while banks appeared overvalued compared with most of their international peers, the financial institutions were well positioned to take advantage of Australia's economic situation.
The major lenders are expected to benefit from the upturn in the housing market, with a key revenue stream — mortgages — likely to continue expanding.
At the same time, while the yield spread between cash, term deposits and banking stocks has narrowed as banking stocks soar to new levels, shares in the lenders still remain relatively attractive.
"You've got record low interest rates from the Reserve Bank, you've got a limited space of assets at the moment that are fair value or close to fair value, and [the banks are] paying above-average yield," Arab Bank treasury dealer David Scutt said.
Meanwhile, with the Australian economy continuing to perform more strongly than those of other developed economies, international investors remain drawn to the local sharemarket.
"They have been coming in, buying their Australian dollars and popping it into liquid investments like banking stocks," Mr Farnham said.
"But it's not just the banking stocks. I'm sure the major retailers and the likes of Telstra get some benefits from that game as well."
Even so, Mr Scutt said he did not expect banking stocks to rise much further unless the banks posted a sharp lift in earnings.
Frequently Asked Questions about this Article…
Australian bank stocks, including ANZ, Commonwealth Bank, and Westpac, are reaching record highs due to strong earnings growth, increased dividends, and a favorable economic environment. Investors are drawn to the reliable earnings and attractive yields offered by these banks.
The big four banks in Australia are performing exceptionally well, with ANZ, Commonwealth Bank, and Westpac hitting record highs. NAB is also nearing a six-year high. This strong performance is contributing to the local sharemarket reaching new five-year peaks.
Bank earnings have a significant impact on the Australian sharemarket. The strong earnings growth and increased dividends from major banks like ANZ and NAB are boosting investor confidence, helping the market close at a new five-year high.
There is a debate about whether banking stocks are overvalued. While some analysts believe they are overvalued compared to international peers, others argue that the banks are well-positioned to benefit from Australia's economic situation and continue to offer attractive yields.
International investors are attracted to the Australian sharemarket due to the country's strong economic performance compared to other developed economies. They are investing in liquid assets like banking stocks, which offer reliable earnings and attractive yields.
Low interest rates from the Reserve Bank make banking stocks more attractive to investors. With limited assets available at fair value, banks are offering above-average yields, drawing income-focused investors to these stocks.
The housing market plays a crucial role in the performance of bank stocks. As the housing market experiences an upturn, banks benefit from increased mortgage revenue, which is a key revenue stream for them.
The outlook for banking stocks is cautiously optimistic. While they are performing well, further significant rises are not expected unless banks report a sharp increase in earnings. The current economic conditions and strong earnings growth continue to support their performance.
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