The Australian share market has rallied to its highest level since early March and briefly reclaimed the 6,000-point level on buying of leading blue chips.
The Big Four banks have returned strongly after being hit hard by the fallout from the coronavirus.
Commonwealth Bank of Australia [ASX:CBA] is up 2.9% to $68.04, National Australia Bank Ltd [ASX:NAB] is up 3.7%, and Australia and New Zealand Banking Group Ltd [ASX:ANZ] is up 3.5% to $19.59. Westpac Banking Corporation [ASX:WBC] is up 3.7% to $18.62.
Despite the economic woes and entering our first recession since 1991, traders seem unfazed and have followed the rally on Wall Street overnight.
Optimism, not corporate governance
It seems with the easing of lockdown restrictions across the US, this could have spurred on a new appetite for more risky equities (as opposed to gold and bonds).
The appetite for equities may be helped by optimism in the economy as things look like they may begin to return to normal.
Indeed, optimism could have pushed the Big Four banks higher today.
Westpac investors in particular seem undaunted by the bank publishing the findings of an investigation into its money laundering and child exploitation scandal.
In an announcement released this morning, WBC said findings of the investigation where due the failures of technology and human error — not intentional wrongdoing.
The scandal led to former Westpac chief executive Brian Hartzer and chairman Lindsay Maxsted stepping down.
CBA’s monitoring of its own technology has been called into question today too.
Australia’s largest bank said it is looking into customers sending potentially abusive messages in banking transaction descriptions.
CBA said any customers found to be using its app or NetBank to send defamatory, harassing, threatening, or unlawful messages will have their transactions refused.
The bank also went as far to threaten the cancellation of banking services for customers using their services inappropriately.
It’s no secret the banks’ earnings have taken a hit thanks to some emerging Aussie fintechs. Check out our free report on the three fintechs outsmarting the Big Four banks. Download here.
What’s next for the banks?
The Australian economy shrank less than what was initially expected, according to the latest data.
Australia experienced a contraction in GDP of 0.3%, slightly less than the 0.4% initially predicted.
And in economic terms, we are doing better than a lot of other developed countries on the road to recovery.
With the Aussie dollar reaching a new, five-month high of 69.83 US cents on Wednesday, investors could be high on the hopes of a swifter economic rebound.
This could be what is spurring on the share prices of the Big Four.
Do note though, there is plenty of uncertainty left ahead.
While we experienced a contraction of 0.3% in GDP last quarter, the contraction in the second quarter is expected to be larger.
Optimism in the banks may be misplaced currently. Personally, I would wait until we’ve seen financial earnings.
Which aren’t due until much later in the year.
If you’re looking to buy stocks while the market recovers check out Money Morning’s Sam Volkering’s four favourite ASX stocks that he says investors should consider in 2020. Check them out here.
For Money Morning