Should You Buy ANZ Banking Group at this Share Price?

What happened to the ANZ share price?

Australia and New Zealand Banking Group [ASX:ANZ] gained 1.1% in early afternoon trading today. The stock was trading at $32.27 a share. The market bounced back strongly after five days of consecutive falls. Miners are doing better due to a rise in the iron ore price.

Everyone seems to be very surprised about a rebound in the iron ore price. I have been saying to investors that commodities have hit a bottom. We are already in the reflation phase. Demand is strengthening on the Chinese side and the supply is going through rationalisation.

If you ignore the fundamentals and just focus on a low frequency trading strategy in iron ore, you would have grown your investment by 29% in the last 12 months. Iron ore trading strategies are not that hard to model. Low frequency momentum traders should be able to produce a handsome return in today’s environment.

Why did this happen to ANZ shares?

Banks, banks, banks…

Australian banks have been suffering from increased competition, and therefore declining interest rate margins. This is not unique to Australian banks. It’s true for many countries in today’s global economy.

There might be some market observers out there who are short on banks, but there is no denying that ANZ has seen a phenomenal build-up in value over the last few years. How can that be? The last time you opened the paper, everything was ‘bad’.

The truth is, banks tend to suffer during sharp economic crisis — for example; during the global financial crisis. However, they enjoy the benefit of cheaper capital as a result of monetary loosening in times of economic softness.

In the case of Australia, banks have continued to grow their value by leveraging cheap capital and thanks to a relatively stable economy. If you haven’t noticed, there is a housing boom going on. That directly benefits the banking sector through increased demand for capital.

And let’s not forget that interest cuts will continue to drive the property boom and the equity market boom. Fundamentally speaking, banks are a great investment.

What now for ANZ?

For traders, it is a different story. ANZ has had a great run in the last few years and generated an increasing amount of return for traders. However, the stock has not been a profitable trade lately. There will be a normalisation in trading profit for ANZ at some point. Nevertheless, the stock is clearly going through a correction right now.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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