If recent history is anything to go by, then October should be a good month for Australian bank stocks.
Research in Paul Copplestone’s “Coppo Report” shows that since 2000, Aussie banks have been the best performing sector on the ASX200.
This chart shows how the banks have performed in October since the year 2000:
Copplestone said the consistently strong October performance is partly due to the timing of when banks report their earnings. Among the big four banks, Westpac, ANZ and NAB all have a financial year-end of September 30 (CBA is June 30).
So those three banks present their results in late-October or early-November, and Copplestone said investors usually take the opportunity to buy shares before the earnings reports.
There’s also dividends to consider. With the August reporting season recently completed, the majority of listed Australian companies have presented their results and paid out dividends across September and October.
Copplestone said that across those two months, $23.7 billion worth of dividends was paid out.
The big banks are among the biggest dividend-payers in Australia, and Westpac, ANZ and NAB all have payments coming up. Copplestone estimates that those three banks alone will pay $8.2 billion in dividends, and investors will look to buy those stocks before they trade ex-dividend in early November.
So that gives rise to a transition, as investors rotate from stocks which have already paid dividends into stocks which are about to pay.
“There are some funds that follow the dividends around & provide big distributions & these funds I know will be buying the banks for their income,” Copplestone said.
Whatever the key drivers of demand for bank stocks are, there’s no doubt that financials have historically outperformed other sectors in October:
Coppelstone also said that October is generally a good month for the broader index, with the ASX200 closing up an average of 1.55% since 2000.
Extra demand in October would be a welcome relief for Australian bank stocks. The ASX200 financials index has declined by 3.4% this year, weighed down by the federal government’s bank levy while the Commonwealth Bank faces allegations of money laundering.
Given that bank stocks make up a whopping 25% of the ASX by market capitalisation, the sector’s underperformance has dragged on Australian equities in 2017.
The ASX200 financials index is up by 0.7% this morning in early trade, following a strong lead from global stock markets overnight.
Here’s a chart showing the annual performance of Australian bank stocks: