At time of writing, the share price of Commonwealth Bank of Australia [ASX:CBA] is down 0.28%, trading at $82.15 in its third straight losing session.
The CBA share price has outperformed the other Big Four bank stocks in a 12-month period. Below you can see CBA (yellow line) matched up against Australia and New Zealand Banking Group Ltd [ASX:ANZ] (blue line), Westpac Banking Corporation [ASX:WBC] (black line), and National Australia Bank Ltd [ASX:NAB] (red line).
Source: tradingview.com
Here are three things to note about this chart:
- While the period surrounding the completion of the Banking Royal Commission was a particularly bad period for the Big Four bank stocks, CBA actually outperformed during this period.
- CBA was even outperforming around mid-October and has continued this trend.
- It’s particularly interesting to see the sharp plunge and then spike around the Federal election.
What a difference an election upset makes. In previous coverage of the CBA share price, we suggested that its performance would be middling to this point.
We were slightly off, but at the time, a Shorten election was looking like a foregone conclusion.
Our ‘Top 5 Dividend Stocks for 2019’ (May surprise you…not the banks)
CBA’s share price performance may be linked to its ROE
However, the question remains, is there an underlying reason for shares of CBA outperforming the other bank shares?
It is possible that when it comes to centralised banking, size does matter.
As the biggest bank, CBA has a superior return on equity (ROE) which indicates it uses its money better as seen below:
Source: KPMG
This is just one metric, but a popular one.
The broader question then is, what is the CBA outlook like? Or the outlook for the other Big Four banks?
For the immediate answer to this, you need to know a bit about the housing cycle. And for the longer term, a little bit about fintech and crypto.
It is also helpful to note the potential points of resistance on the CBA chart, which you can see below:
Source: tradingview.com
There are a large variety of scenarios here, but its possible resistance could have already been hit in the $82–83 range.
Bank stocks’ outlook linked to housing, crypto
As for short-term outlook, the housing downturn has recently appeared to be easing, with future downside risks emanating from the global economy.
So, there could be muted upside yet to come.
In May, for example, APRA indicated it will remove a borrowing floor, in theory allowing Aussie property owners to plunge more money into the real estate market.
Harje, one of our editors, recently had a look at other relevant changes to APRA regulations that could threaten Big Four hegemony.
So regulators will continue tinkering away, it seems.
Longer term, there is divided opinion on how the Big Four will deal with the resurgent crypto sphere.
Bitcoin has recently broken above US$10,000 and Facebook has launched its Libra cryptocurrency project.
These events strike us as indicative of the five- to 10–year outlook for CBA and the other Big Four bank stocks.
Largely negative.
Regards,
Lachlann Tierney,
For Money Morning
PS: If you are on the look out for ideas for income investing, our ‘Top 5 Dividend Stocks for 2019′ is a great starting point for your research. You can download that here.