As Australian economic data continue to provide "less bad" results, cementing a long-held view that Australia will fair much better through the GFC than other developed nations, bank analysts are becoming more convinced that the riskier and less valued pairing of the smaller NAB and ANZ are not as much of a risk after all. GSJB Were sees the stock market as having moved into a "consolidation phase", and a significant catalyst is now needed to move the index either up or down. Weres analysts favour the upside in the belief data will continue to positively surprise.
To that end, Weres has reassessed its model equity portfolio, deciding its longstanding underweight on the banking sector is looking like a potential cause of underperformance. Weres has been a leader in a growing trend among analysts to "look through" not only likely poor FY09 earnings results, but through an uninspiring FY10 as well. As an FY11 price-to-earnings proposition, Weres, among others, believes value has begun to show.
Citi has this week addressed one potential party spoiler, being the likelihood of increased government regulation of the banking sector in the wake of the GFC and particularly in the wake of government deposit guarantees. Yet now that Australian bank capital levels "appear sufficient", Citi suggests that the loss of profit potential due to stricter rules will not have too significant an impact.
With the exception of a still wary RBS, the major Australian broking houses are quietly becoming a lot more favourable towards the big banks. Be warned - if RBA also turns there may be a major correction afoot.
FNArena