• Christopher Hall

Banks Drag Down the ASX’s Performance

April 2020 saw a recovery from the March 2020 COVID-19 market falls, however the Australian Banks have been a heavy, lagging, weight in the Australia Market.

Dividend cuts, capital raisings and government intervention are always red flags to share prices, but just how much impact has these had on the Australian Market?

Capital Raisings

At the time of writing, National Australian Bank (NAB) has announced a capital raising, issuing new shares at a discount to their last traded price.

ANZ are expected to announce a similar raise tomorrow.

Some analysts don’t expect Westpac (WBC) or Commonwealth Bank (CBA) to raise money at this stage - but time will tell.

Raising money is rarely a good sign for existing shareholders because the same ‘pie’ is now being divided into smaller slices. This means the same profit is split amongst more shareholders, or there is less profit per share - never a welcomed idea.

Reduced Dividends

There are two schools of thought as to why these dividends have dropped:

1. Prudent measures.

It seems fair enough with COVID-19 lockdown creating unknown economic implications.

Plus, it’s also not a good sign to see dividends being paid while capital raisings are underway - it would make for a revolving door of capital in and out.

2. Political posturing.

With the rest of the economy looking at grim numbers, it’s not a good look politically, to be pushing along, full steam ahead, while the rest of the country is trying to keep their heads above water.

Additionally, we know there will be a significant tax back-lash from all the COVID-19 stimulus measures. Someone will have to pay for it, and a bank telling the world that their profits were not impacted is like a red rag to a bull.

In this sense, a dividend cut is the a reasonable measure.

Performance is down

Looking at the ASX’s largest 20 companies, the banks all sit in the bottom half of that list for the week and month.

  • Scentre Group (SCG) is up + 36% for the month.

  • Woodside Petroleum (WPL) is up +22%

  • Macquarie (MQG) + 21%

Commonwealth Bank is up +5% and NAB up +6.5% and Rio Tinto, the worst of the Top 20, is flat for the month.

Compared to the smaller end of the market:

- The Small Ordinaries index is up +14%,

- Against the market +10.3%; and

- The Banking ETF (MVB), which includes MQG, that’s bringing up the average +8.02%

For more insights on how the smaller end of the market is performing better than the rest, read here.

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