The ASX closed at a four-month low today. The Australian market has been one of the weakest in the developed world in recent weeks.
The big change has been the sheen coming off Australian banking stocks. Aussie banks have been an attractive yield trade for many investors, including offshore funds, but with yields starting to pick up again around the world they have become less competitive on that measure.
There are also signs that the banks will have trouble maintaining their profit margins. The result has been the share prices have been falling, and the ASX banks index is down 15% from the year high back for the stocks back in March.
Morgan Stanley’s equities team produced this chart looking at industry contributions to the total return of the ASX in May. Retailers came off a little and media dragged again, but the banks were responsible for a 100-point detraction from the ASX200 over the month.
It’s a powerful illustration of the change in the atmospherics around Australian bank stocks after years of stellar performance.