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Earlier this week, a combination of rising bad debts revealed in the company’s latest earnings report, and, a panicked response to the Jim Chalmers-led CGT changes in the Federal budget, tanked Commonwealth Bank (ASX:CBA) shares.
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What happened thereafter is already well known by this point: CBA staged its largest intraday drop on record, wiping some A$30B from its market cap.
Not exactly a good look for the bank, and, given its market cap, the fall in Commonwealth helped drag down the entire Australian share market with it.
It’s good news for BHP Ltd, insofar as a kind of market-cap-competition goes – the big Aussie is now by far the most valuable stock on the market, especially seeing as a life in copper prices above US$6.00/ld has been a boon for BHP, which is also now worth around A$60/sh.
As for why Commonwealth fell, as mentioned, it was a two-pronged catalyst. The company’s latest quarterly showed key growth metrics more or less flat and what appeared to have worried some investors is that the company’s bad debts are rising.
Nowhere near eating into profits in any meaningful sense, but still over $300M.
Then there were the CGT change announcements unveiled in the budget. While not kicking in until July 2027, it’s clear that a lot of people are nervous what a mix of index inflation, and, a flat 30% post-12-months CGT tax means for investors.
Given it’s uncontroversial CBA’s outperformance in the last two years or so has been driven also by Foreign Direct Investment (FDI) nervous to hedge American bets, I’d like to know how many foreign investors fled the CBA coop earlier this week, which has long been a kind of ‘safe haven’ stock on the ASX.
At any rate: a more pertinent question might now be, where to for CBA, and, what about the other basket of Big 4 bank stocks?
It’s fair to say it’s unlikely CBA will quickly recover to the lofty valuations it held at around $180/sh, which made it the world’s most expensive bank stock.
If you zoom out, a fall to A$160/sh isn’t that bad compared to where the stock sat in November of 2023: hovering right under A$100/sh.
But the pain has been felt across the other major players. Shares in NAB Ltd are down nearly -8% over the last week; ANZ Ltd down nearly -6% WoW; Westpac down nearly -9% and of course, CBA down -10% over that same period.
It doesn’t take a genius to realise CBA will probably be a dividing rod for that basket of stocks – unless of course we’re about to see some kind of divergence moment, but I doubt it. The threats to CBA’s books are Australia-wide, and all eyes are on mortgage loan arrears.
Then again, a property crash has been feared for years, and it just isn’t coming. The latest CGT changes to the Budget may be a sly attempt to usher in a slow-motion crash, which would absolutely make houses more affordable, and in the long run that would be unlikely to mean less business for the banks.
At the same time, you could also argue CBA, at least, has long been overvalued. Analysts at VanEck for their part see further strength in the ASX coming from outside the financials sector, and with BHP doing what it’s doing, the ‘commodities supercycle’ thesis popular before the Hormuz Strait issue became embedded appears to have been prescient.
Then again, it’s really only copper that we’re seeing bulletproof strength in, and a ‘copper megatrend’ has been getting forecast for the last half-decade. That’s what BHP has been positioning itself for.
CBA’s recovery on Friday shows a contingent of the investing populace believe the stock was oversold this week; for my part, I can’t help but think a psychological anchor price of $150 a share could be where we end up settling, worst case scenario.
CBA last traded at $160/sh.
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