In contrast to the performance of the broader ASX 200 which added 7%, Australian banking stocks did not have the best of years in 2017.
The ASX 200 Bank Index fell 3.5%, weighed down by a softening housing market, regulatory action from APRA and ASIC, along with the ongoing threat of a possible Royal Commission.
It’s added to those losses in January, falling 1.35%.
However, after a disappointing performance last year, Macquarie Securities thinks things are looking brighter for the banks in 2018.
It says current valuations are “increasingly hard to ignore”, and has decided to take an overweight position in the sector.
“We see bank valuations as attractive at current levels,” it said in a note released today.
“While the underlying earnings growth profile remains subdued, in low growth and favourable credit environment, we expect banks to return capital to shareholders via special dividends and buy-backs.
“Following the underperformance relative to the broader market in 2017, the banks sector is now trading at a 31% discount to industrials compared to the long-run average of 20%) and we see relative value at current levels.”
In other words, now’s the time to buy, in Macquarie’s opinion.
“We are currently overweight the sector with our order of preference being WBC, ANZ, NAB, CBA, BEN and BOQ,” it says.