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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Please ensure you fully understand the risks involved.

ASX bank stocks plunge, J.P. downgrades ANZ to Neutral

Bank stocks fall with the broader market, J.P. Morgan raises their price targets on the big four banks.

ASX banks Source: Bloomberg

ASX 200 and banks fall in unison

During the market madness of March – the Financials Index (XFJ), which makes up 26.4% of the ASX 200 – bottomed out at 3,591 points.

Since then, the Financials index has rallied strongly, last trading at 4,859 points, implying a move of ~35% from those March lows. Individual bank stocks have moved up in step, with the big four banks ripping higher over the last couple of weeks, as investor concerns about the economic damage of the coronavirus somewhat subside and the prospect of bank dividend payments resuming surface.

That bullish trend hit a mild setback today, with ANZ falling 6.21%, WBC dropping 6.09%, CBA shedding 4.41% and NAB plunging 5.41%.

The ASX 200 also finished the session 187 points lower, at 5,960 points, breaking a seven session winning streak in the process.

ANZ, CBA, Westpac and NAB share prices: the analyst outlook

While J.P. Morgan thinks Australia’s banking sector is justifiably valued at a price-to-book multiple of ~1.3x – the current price targets the investment bank has on some of the big four banks, specifically ANZ, NAB, and Westpac, suggests there remains potential upside for investors at current price levels .

Centrally, in a note released today, J.P. Morgan analysts argued that ‘Deposit pricing suggests NIMs [net interest margins] to be better insulated than previously expected,’ with system deposits significantly increasing over the last few months.

Bank net interest margins have faced significant pressure in recent times, with Australia’s official cash rate currently sitting at 0.25%.

Interestingly, J.P. Morgan made the observation that since January 'we started to see the banks more aggressively reprice their deposits downwards,’ though it was flagged that on average, the banks ‘only reduced their deposit rates by about 50% of the move in the cash rate.’

Moreover, the investment bank went on to say that the Bank Bill/ Overnight Indexed Swap (BILL/OIS) spread recently falling into negative territory should also prove supportive of bank net interest margins.

Overall, as a consequence of net interest margin, liquidity, deposit and funding trends, J.P. Morgan’s analysts upgraded their retail bank earnings outlook and lifted their price targets (PTs) on all of the big four banks: ANZ (PT: $20.02), CBA (PT: $62.65), NAB (PT: $21.64) and Westpac (PT: $20.13).

In response to lifting ANZ's price target 11.2%, J.P. analysts lowered their rating from Buy to Neutral.

How to trade bank stocks

Where do you stand: are you bullish or bearish on the big four's prospects? Whatever your view, you can trade the likes of ANZ, CBA, Westpac and even NAB – long or short – using IG’s world-class trading platform now.

For example, to buy (long) or sell (short) CBA using CFDs, follow these easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘CBA’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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