Global investors have increased their exposure to Australian bank stocks

(Ethan Miller / Getty Images)
  • Domestic investors are shunning the big banks amid a reduced earnings outlook and regulatory uncertainty.
  • But data from Macquarie shows offshore investors increased their positions in the September quarter.
  • Given the recent price falls, Macquarie said the big banks look like attractive value relative the broader index.

Australian banks are on the nose with local investors.

Data from Macquarie shows domestic institutional investors reduced their allocations to banks in the September quarter.

And “unlike previous quarters, when retail investors were net buyers of the sector on share price weakness, it appears that in Q3 they remained largely on the sidelines,” Macquarie said.

But it was a different story for global investors, who took advantage of share price weakness to add to their underweight positions:

Macquarie Bank

Further analysis shows domestic institutional investors were heavier sellers of Westpac in the quarter, while CBA was least affected.

“Offshore investors reversed their 2Q18 actions, buying the major banks, especially NAB and Westpac,” Macquarie said.

More broadly, domestic institutional investors remain most overweight in ANZ, while CBA “continues to be a large underweight position”:

Macquarie Bank

Based on current positioning, Macquarie said that if domestic institutional investors continue to move out of the banks in Q4 it would put further downside pressure on ANZ.

Local retail investors, who make up around 50% of the share registry for the big four banks, maintained their overweight position in Commonwealth Bank.

The Macquarie analysts also noted that short positions in the banks declined throughout the quarter, as share prices fell to 2018 lows.

Total short interest as at the end of September amounted to around $3.4 billion (down from $5.7 billion), comprising around 0.8% of the total shares on issue.

The decline in short positions means there’s “minimal upside to share prices from the potential ‘short squeeze,’ if banks were to surprise with better-than-expected results,” Macquarie said.

Bank reporting season kicks off next Wednesday when ANZ reports full-year results, followed by NAB on Thursday and Westpac on Monday.

Macquarie said at current prices, the big banks look like attractive value when compared to the broader index.

However, “sentiment around the earnings outlook and political environment” has kept local investors on the sidelines.

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