I had dinner the other night with an endangered species: a fund manager who is overweight Aussie banks.
He says concerns about property, the bank levy and capital constraints are overdone; they’ll be fine.
I also spoke to Andrew Tang of Morgans this week because of a report he produced on his “high conviction” stock picks, one of which, surprisingly, was Westpac.
You can read the whole transcript of that interview on The Constant Investor, but in summary he thinks the reaction to the bank levy was overdone, as is the profit taking as the Trump trade unwinds.
“…we are very positive on Westpac over the next 12-24 months. We think economic data is gradually going to improve over the second half. We think Westpac has, in terms of repricing home loans and in particular the investor side of home loans, the repricing that is taking place will be most beneficial to Westpac, given the low exposure to offshore markets and treasury markets.”
“We think that the capital position is good, its pricing position is very good and once the headwinds of the noise around the bank levy start to subside, we will start to see these banks start to rerate. Of the four, we prefer Westpac. We do think that the sector as a whole, the selling has been a little overdone, just given the noise around the levy and we certainly expect share prices to bounce back.”
As for my dinner companion the other night, he says any concerns about bad debts arising out of the coming property correction are also overdone, because Australians always pay their mortgages first and don’t worry about house prices.
If you’re worried about the property cycle, you’d sell discretionary retail he says, not banks, because it is those retailers who will suffer first and most.
Also, he agrees that property developers look vulnerable to settlement risk, but banks have not been funding them – it’s been high net worth individuals and families through non-bank lenders, who have getting 12-14% interest rates. They are about to learn why they get paid those yields.
He’d been reading The Constant Investor, and asked me why I was negative on the banks, given the obvious sense he was making.
I replied that it was mainly about technology, long term. I agreed that the banks will ride out the property correction pretty smoothly and that the recent selling had been overdone, but the five-year picture is clouded by the likelihood of disruption.
After the disruption of the media by technology is now coming the disruption of energy; after that will be banking. In fact, it’s already happening, with every part of their businesses under attack, especially transactions, lending, and wealth advice.
So the difference between us was simply the difference between one and five years.
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