Rudi’s View: (Not) About The Banks

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Mar 29 2023

In this week's Weekly Insights:

-More Data, More Brokers
-US Recession More likely
-(Not) About The Banks

By Rudi Filapek-Vandyck, Editor

More Data, More Brokers

FNArena continues building the best service possible.

On Friday, we added yet another window of company-specific data, thanks to FactSet.

Potentially, the first eye-catcher in Stock Analysis is now how much debt each company is carrying.

Behind the 'More Data' button in Stock Analysis are now four windows of data and charts.

In addition, Credit Suisse is being removed as an FNArena database broker. Instead, the Australian Broker Call Report will now update daily on research from Bell Potter and Shaw and Partners.

This not only means more research, but also more companies that previously were not covered through The Australian Broker Call Report.

If you are not a subscriber, or you are no longer a subscriber, and would like to have another look at our service, contact us via email.

US Recession More likely

Nothing is set in stone when the subject is financial markets, but a financial crisis for regional banks in the US will, all else being equal, put further strain on the availability of credit and thus hamper economic growth.

All talk about a 'no landing' scenario should now definitely been relegated to the sin bin. There will most likely be a 'landing' for the US economy in the twelve months ahead.

As to exactly how 'soft' or 'hard' that landing might be is still dependent on multiple factors and yet to be established outcomes.

Common logic suggests markets will opt for a reduced risk approach, at least until more clarity emerges about the consequences for US businesses and economic growth.

Then again, common logic is not always that common, and the prospect of a boring sideways channel would not excite many who make a living out of daily volatility.

(Not) About The Banks

Today's story is about Australian banks, except it isn't. Not really.

Hopefully this is not too confusing already, but Dear Reader, you will have to read until the end to understand what this story really is about.

As said, I'd like to start off with Australian banks.

For more than a decade now, CommBank ((CBA)) has been priced at a sizeable premium versus other banks in Australia.

The embedded gap in valuation attracts both criticism and amazement; to many Commbank shares sit right at the bottom of industry rankings; other banks on cheaper valuations look so much more attractive.

This is the case today as it has been at any point post the GFC.

The obvious contradiction here is that CommBank shares have not underperformed throughout those years. To the contrary, CommBank shares today are the one sector exception in that the shares have managed to rise above their peak from back then.

The only one in the sector locally.

Fifteen years after the GFC, all other bank shares in Australia are still trading (well) below the levels recorded in 2007.

Popular explanations for CBA's valuation premium, there are many, but the most quoted and most credible on my observation, is that CommBank is simply Australia's superior bank - better than all the rest.

Testing The Thesis

To genuinely test the thesis, we must have an impartial, non-subjective, unbiased method for measuring the corporate quality for CommBank and the others. Is there a difference at all, and can we measure it?

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