December 27, 2024 - The Australian banking sector has experienced significant growth this year, with the financial sub-index rising nearly 30%, marking its best performance since 2009. This surge outpaced the S&P/ASX 200 benchmark index, which gained 8%.
The robust performance of banks is attributed to inflows from superannuation funds and retail investors, drawn by the banks' capacity to deliver high capital returns in a challenging economic landscape. Analysts noted that stable earnings and strong asset quality have further fueled investment in the banking sector.
The Commonwealth Bank of Australia (CBA) emerged as the standout performer, increasing by 39% and becoming the most valuable entity on the Australian Stock Exchange. CBA's shares last traded at A$155.12, significantly above the average 12-month price target of A$104.37.
Other major banks also saw substantial gains, with National Australia Bank rising nearly 22%, Westpac increasing by 42%, and ANZ logging an 11% gain. However, analysts caution that the sustainability of this rally is contingent on the Reserve Bank of Australia's (RBA) future interest rate decisions.
The RBA has maintained interest rates at 4.35% for the past year, but has hinted at potential easing as early as February, depending on forthcoming economic data. Current market expectations suggest a 50% probability of a rate cut in February, with April fully priced for a reduction.
While elevated inflation and stagnant short-term rates may pose challenges, a reduction in rates could open up new investment opportunities across the Australian market, as other sectors may benefit from lower rates and inflation relief.