What’s in store for the Big 4 in 2019?
Published 18-JAN-2019 14:32 P.M.
3 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
Banks set to soar as Royal Commission ends
In the past year, financial news has been dominated by the Royal Commission into the Finance Sector. However, this is now coming to an end with the final report due to be submitted on 1 February.
Will this report cut the anchor that has held the banks back or will it be a nail in their coffin?
The Royal Commission has well and truly taken its toll on the banks as they were down as much as 30 per cent from their 2015 highs last year. To put this into perspective, as of December 2018, some of the banks where trading at levels not seen since 2012.
With dividend yields of around 6 to 8 per cent, this makes bank stocks a very attractive investment right now, although you would be wise to ponder whether the worst is behind us.
That said, while the dividend yields are attractive, they are often a sign of a poor performing stock. That is certainly the case here. We also need to remember that there is a reason why the banks are down as much as they are, and there are many hurdles they still need to overcome.
So what’s in store for the Big 4 in 2019?
The first quarter trading updates for the banks will occur shortly after the Royal Commission report is released, so the banks may see some short term volatility in the next month.
If there are no real surprises from the commission, we could see a 5 to 8 per cent gain in the short term. That said, there is downside risk if the commissioner wants to make an example out of the banks, as the recommendations may significantly impact the banks' bottom line. If this occurs, prices could fall to back to the December lows.
Right now, I believe the worst is over and that the banks will continue to rise in the short to medium term. Looking at the big four banks historically, we know they have been down since early 2015, and history suggests that a decline of more than four years is highly unlikely. That said, for the banks to be in the clear they need to have a strong move up in the next 6 months in the order of 10 per cent or more.
The best time to make your decision on the banks is shortly after the Royal Commission report is released, as the change in trend from down to up will be confirmed by then and you will be able to gauge the response to the report. Remember, the big four are a longer-term investment, so there is no not need to rush.
My favourite stock in this sector at the moment is CBA, although I do like some of the second-tier banks such as Bendigo Bank and Adelaide Bank, so I recommend sticking both stocks on your watch list.
So what do we expect in the market?
The All Ordinaries is bullish and while this statement may seem a little over confident the signs are certainly there to back this up. The market is up nearly 8 per cent in the past few weeks and the banks have moved up strongly this week along with BHP and RIO. In the past 11 days the market has only traded lower than the previous day once, which was last Monday, and we are experiencing the highest closing prices in our market over the past two months.
That said, the volatility in the past year has investors cautious and with normal volumes starting to return to after the Christmas break, we still need to be careful that the market could do anything.
The real test will come when the market trades up to 6,000 points, because if it fails to break through this level, it will mean further downside is likely. Right now things are looking good and I expect the market will trade through this level and move up to 6,200 by the end of the first quarter this year.
My advice is look to the big stocks for opportunities to buy.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.