Australian financial stocks – particularly banks – have had a rough time lately having rallied hard since the beginning of the year.
Here’s a chart showing the performance of the ASX 200 financials index, excluding real estate investment trusts, over the past 12 months.
By March 20 the index had climbed over 15% this year as expectations for further interest rate cuts from the RBA fuelled demand for higher-yielding investments. However, since hitting a closing high of 8,394.2 that day, the index, after wobbling in April, has fallen substantially in recent days.
On Monday this week, post a disappointing earnings result from Westpac, the index fell 1.5%, taking cumulative losses over the past four sessions to 5.12%. This, on closer examination, is the sharpest four-day decline in the last 18 months.
With market expectations of a RBA rate cut on Tuesday largely factored in, it suggests earnings results from ANZ (Tuesday), NAB (Thursday) and Macquarie (Friday), plus the CBA’s March quarter on Wednesday, will be influential as to which direction the index heads in next.
With so much good news built in – the index is still up 6.5% YTD – any repeat performance of the Westpac half-yearly result could see further losses eventuate despite the best efforts of the RBA and the likelihood for lower interest rates.