July 2014
by Russel Chesler, Investments & Portfolio Strategy at Market Vectors Australia
The share prices of Australia's banks continue to rise, despite broker downgrades and commentary that current values are not sustainable.
Performance of the MV Australia Banks Index (MVMVB) with Bank Downgrades
Domestically, there are a number of factors driving the prices including the flow of capital from Australia’s compulsory retirement-savings regime, the favourable regulatory environment and the yield Australian banks currently offer versus the cash-deposit rate.
The table below illustrates on a global basis Australia's banks are among the most competitive. Excluding the BRIC nations, pre-tax profits are the highest. Additionally operating costs are trending lower.
Despite analysts downgrading Australian Banks the outlook is far from grim.
Profitability of major banks
as a percentage of total assets (1)
All data as of 10 June 2014.
Source: MVIS, Bankscope, BIS calulations
About the Author:
Russel Chesler, Director, Investments & Portfolio Strategy, Market Vectors Australia is responsible for Van Eck's Australian listed exchange-traded funds (ETFs). An actuary with over 20 years' experience in financial services he has previously held positions at Perpetual Limited, Grange Securities, Alexander Forbes and Liberty Life. Russel has a Bachelor of Science (Honours) from the University of Witwatersrand, Johannesburg and is a Fellow of the Institute of Actuaries (United Kingdom) and a member of the Wealth Management sub-committee of the Actuaries Institute Australia.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.