I Rarely Buy ASX Listed Companies, But I’m Issuing an Alert for This Well Known Aussie Bank

(The following content is not a personal recommendation to buy any of the following companies as I am not taking your personal financial situation into account.)

The Big 4 Aussie Banks are some of the most profitable and well run banks in the world, however over the past 4 years they have been out of favour with investors.

I believe that’s about to change.

Between 2017 and 2018 the share price of the big 4 banks fell by as much as 25% due to unfavourable findings from the Royal Banking Commission

At the same time the Commission findings were evaporating investors trust, the Reserve Bank of Australia was lowering official interest rates to historical low levels and in doing so made it more difficult for banks to make money.

As interest rates go lower banks become less profitable which was another reason for investors to sell.

2019 rolled around and the banks were slowly winning back the trust of investors and whilst their share prices had not yet recovered to 2017 highs, consumer and business confidence was steadily returning. Little did they know a global pandemic was just around the corner.

By April 2020 it was obvious the global pandemic was going to tip the world into a deep recession as governments sent their economies into lockdown and tens of millions of people around the world lost their jobs. Central Banks were lowering interest rates as low as they could go and fiscal stimulus programs such as Jobkeeper were being rolled out to try and support unemployed workers.

The share price of banks sunk by as much as 50% through March, April and May 2020 as credit risk sky rocketed, mortgaged holders raced to defer payments, businesses defauled on loans and banks were instructed by regulators to put on hold or reduce any dividend payments.

By September the Australian economy had begun to recover, the RBA together with the government had shored up the economy (albeit leaving itself in a mountain of debt). Banks had reduced or cancelled dividend payments and by October most of the businesses and mortgage holders that had asked to defer repayments were once again paying down debt. The panic surrounding credit risk to banks was evaporating, not just in Australia but globally.

I am continuing to accumulate ANZ.

ANZ’s share price that was sitting at a rock bottom $15 in May 2020 and by Christmas 2020 had risen 60% to $24. We began accumulating ANZ in June at $17.26 and have continued to accumulate more.

Investors are seeing the writing on the wall. When banks made provisions for credit risk it was more than enough, and the banks are now likely sitting on mountains of cash that they will soon return to shareholders through dividends.

When the announcement comes that banks are again going to pay higher dividends, given the fact that interest rates are so low, banks will become very attractive investments and I am expecting an ongoing steady share price appreciation over the coming five years.

ANZ in my view has the potential to rise back to its 2017 high of $36, a rise in value from its February’s 2021 price of 40%.

The RBA will eventually lift interest rates and the big banks may even lift their own rates before the RBA. The increase in global economic output, lower credit risk, higher interest rates in years to come and steadily improving business conditions is going to benefit banks and shareholders.

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