Australia Banks Weekly Drop Most in 19 Months as Rally Sold

Australian bank stocks fell 1.6 percent capping their biggest weekly decline in 19 months as investors sold out of a rally that had driven financial shares to a record high last month.

The S&P/ASX 200 Banks index closed at 7,727.95, dropping 6.6 percent this week. Australia and New Zealand Banking Group Ltd. declined the most among the top four banks this week, falling 8.5 percent, while Westpac Banking Corp. was down 6.5 percent for the period.

“Given the strong run in both relative and absolute terms since the start of the year, the market now appears to be finding the right price for the banks,” Victor German, a bank analyst with Nomura Holdings Inc. said by telephone.

Record profits and higher dividend payout ratios have seen the nation’s financial stocks rise 14 percent this year, compared with a 7.2 percent gain 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 the most expensive lender in the world on May 15.

“The market run has been so skewed towards high-yielding stocks and financials in Australia, and now with worries about China, foreign investors are withdrawing,” Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages $126 billion, said by phone.

The Australian dollar is set for a third weekly decline amid speculation a strengthening U.S. economy will prompt the Federal Reserve to pare back on its bond-buying program and after a report yesterday indicated China’s manufacturing is contracting for the first time in seven months.

HSBC Holdings Plc altered its forecast for the Aussie, saying it will fall to 90 U.S. cents by Dec. 31, compared with a previous forecast of 95.

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