As we enter a period of rate hikes from the RBA margin pressure will likely ease, and ultimately, this will be the key driver of earnings growth over the medium-term.
However, risks remain for Aussie banks. Rising rates could put pressure on house prices and asset quality, weighing on market sentiment.
We believe the net interest margins (NIM) of the majors will grow faster than consensus forecasts leading to earnings upgrades over the next two financial years. Additionally, we believe bank valuations are still on the cheaper side, which could provide an opportunity for a rerate in the short-term.
We have moved to an overweight on banks in the Focus List.
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David is one of Australia’s leading investment strategists.