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Australian Banks Drop Most in Three Years From Record High

Australia Banks on Track for Biggest Monthly Fall in Three Years
A man uses his mobile phone in front of electronic stock boards at the Australian Securities Exchange (ASX Ltd.) headquarters in Sydney. Photographer: Ian Waldie/Bloomberg

Australian bank recorded their worst monthly performance in three years as investors cashed out of a rally that drove financial shares to a record high in April.

The S&P/ASX 200 Banks index plunged 12 percent this month, its biggest decline since May 2010. Westpac Banking Corp., the second-largest lender by market value, slid the most among the nation’s top four banks in the period, losing 15 percent.

“Banks have stood out among the pack and investors, having enjoyed the run and higher dividends, are rotating out to other beaten-down sectors,” Stan Shamu, market strategist at Melbourne-based IG Markets Ltd., said by phone. “It’s also time to take a hard look at record-low mortgage growth, increasing competition and a slowing economy’s impact on banks.”

Record profits, higher dividend payout ratios and low bad debts fueled a 27 percent gain in financial stocks this year through April 30, compared with a 12 percent advance for the benchmark S&P/ASX 200 Index. The rally pushed bank shares to record highs, with UBS AG analysts led by Jonathan Mott calling Commonwealth Bank of Australia the most expensive lender in the world on May 15.

“We expect structural challenges will drive medium-term earnings per share growth of 5 percent, well below their 10 percent to 20 percent a year average,” Goldman Sachs Group Inc. analysts led by Matthew Ross wrote in a note to investors on May 28. They recommended clients switch from banks to miners such as BHP Billiton Ltd.

The note referred to an aging population, low mortgage growth and increased regulation among the structural challenges facing the nation’s lenders.

The International Monetary Fund this week lowered its growth forecasts for China, Australia’s biggest trading partner, to 7.75 percent this year and next, from earlier projections of 8 percent for 2013 and 8.2 percent in 2014.

Investment in commodities and energy has peaked, threatening to slow Australia’s economy, the government said this month.

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