Yesterday the Fin had a story about hedge funds being short on Australia’s big banks, as a bet on emerging markets slowing down.
It was reported that some punters think Australian banks are too expensive, and are due for a price correction that will sting quite a few people.
Well here is a reply from two Australian finance executives, who basically say the hedge funds don’t know what they are talking about, and the banks are expensive for a reason: they are so good.
From the Fin, here is what Bell Potter senior stockbroker Charlie Aitken said:
“I think that many foreign investors are uneducated on the nuances of the Australian banks.
“Has anyone noticed that Australian median property prices are up 10 per cent year on year? Has anyone noticed that the Australian dollar bubble has burst? Has anyone noticed that bad debts are falling and that the bank shares are priced by mum and dad investors who own 50 per cent of each stock?
And here is what Equity Trustees chief investment officer George Boubouras said:
“The four banks are the most expensive in the world and legitimately so. They have the best credit ratings in the world, they are in the top 10 for market cap in the world, their ‘cost-outs’ have been extraordinarily well done with further to go and capital management is best of breed, globally,” Mr Boubouras said.
“Quite clearly there is a lot of information in the market . . . that the shorts will build. That may be on the basis that they are expensive versus their peers offshore, but like-for-like they are not comparable to their peers offshore.”
Overseas investors have been putting money into Australian banks, which are viewed as a safe source of dividend income, as emerging markets experience economic headwinds.
This has been viewed as a good way to replace low-yielding investments
in other sectors and regions.
Banks make up around 30% of the ASX200, and shares in the Big Four are at record highs.
While emerging markets are on the cusp of a turnaround, the big players from overseas piling into them has possibly helped to push banking shares up.
The thought goes that they are reaching bubble territory, and like most bubbles, will eventually face a price correction.
There is more at the Fin.