Australian shares are heading for their worst two-day drop this year, and there are four main culprits: the nation’s lenders.
Investors tracking the S&P/ASX 200 Index have about 30 cents of every dollar in bank shares, triple the global average. That’s hurting as Commonwealth Bank of Australia leads the industry toward its worst weekly slump in almost two years on concern about the outlook for earnings and dividend growth. The benchmark equity measure slid 2.3 percent on Wednesday, with the four largest lenders contributing more than half of the decline, and was down another 0.9 percent as of 12:55 p.m. in Sydney.
Banks have led gains in Australia’s six-year bull market as large dividends made the shares popular in a nation with A$1.9 trillion ($1.5 trillion) in pension savings. Now that income stream is becoming less attractive as bond yields rise amid speculation the central bank will refrain from further interest-rate cuts. The prospect of more onerous capital requirements is also weighing on lenders, with National Australia Bank Ltd. unveiling plans Thursday to raise A$5.5 billion in the country’s biggest-ever rights issue.
“We are a very yield-heavy equity market, so we certainly do very well when the search for yield is on and we do poorly when that is coming off,” said Hasan Tevfik, director of Australian equities research at Credit Suisse Group AG in Sydney by phone. Raising capital in a sluggish profit environment is exacerbating the situation for banks, he said.
National Australia Bank’s rights offering comes after Westpac Banking Corp. said this week it would raise A$2 billion. Australia & New Zealand Banking Group Ltd. said it may bolster capital by as much as A$480 million.
Commonwealth Bank slid 0.3 percent Thursday after tumbling 5.9 percent Wednesday, the most since 2009, as the nation’s biggest bank reported third-quarter cash profit that was unchanged from a year earlier. Its shares are down 14 percent from a March 20 peak, when they traded at 17.2 times estimated earnings. That was the highest multiple since October 2009. They trade at 14.8 times expected profit today.
Westpac lost 0.6 percent today, heading for an 8 percent four-day drop. ANZ fell 0.4 percent and National Australia Bank was halted from trading. The yield on 10-year sovereign bonds climbed 6 basis points to 2.99 percent, increasing for an eighth straight day.
“The search for yield has been a very dominant theme for several years and that has pushed banks beyond a reasonable valuation,” Matthew Sherwood, Sydney based head of investment strategy at Perpetual Ltd., which manages about $21 billion, said by phone. “This highlights the importance of not getting carried away with your exposure to one sector and the problem if you have such a large sector in one market.”