MARKETS SPECTATOR: Between banks and miners

Traders believe investors are teetering on the edge of begining a headlong rush out of bank stocks and into BHP Billiton, Rio Tinto and other mining shares.

Some hedge funds have decided the relative value of BHP Billiton and Rio Tinto against the banks have made them a buy at the expense of the banks. Fueling such a rotation may be the ex-dividend dates for the banks. ANZ’s ex-dividend date is this week.

Traders say since ANZ’s earnings earlier this month, the upward trajectory of bank stocks has slowed. But other traders dispute this. They say the market theme, the search for yield, is still in place. Such traders point to miners cutting costs, selling assets and increasing their dividends as proof. Miners, they say, are trying to replicate the banks by offering good yield.

Money may come into mining stocks in bulk when a resources company announces a dividend increase, argue some traders. Banks, they say, are still attractive to investors because of their yields, now 7 per cent to 8 per cent, fully franked.

But bank earnings suggest there is little growth in the near term. Improved profits are the result of cost cutting. Further helping bank earnings is that the bad debt cycle is now at its nadir.