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Business Recorder
2 days ago
- Business
- Business Recorder
Australian shares erase early gains to close lower
Australian shares gave up early advances to close lower on Thursday, as investors booked profits after encouraging cues from U.S.-China trade talks fuelled two sessions of record gains. The S&P/ASX 200 index ended 0.3% lower at 8,565.1 points after rising as much as 0.3% early in the session. The benchmark closed at record highs in the previous two sessions. Markets globally were closely monitoring the U.S.-China trade talks this week, which resulted in a framework agreement that would remove Chinese export restrictions on rare earth minerals and allow Chinese students access to U.S. universities. However, the United States saying it was readying a partial evacuation of its Iraqi embassy due to heightened security risks in the region proved a dampener for risk appetite. Back in Sydney, heavyweight financial stocks ended 0.5% lower, dragged down by the 'Big Four' banks, which fell between 0.2% and 0.8%. Australia's big lenders, often seen as the backbone of the economy, have seen a robust rally recently on expectations of lower near-term rates. Australian shares hit record peak as US-China revive trade truce Banking stocks, which have been beneficiaries from the last two rate cuts and the one expected in July, are naturally likelier candidates for any retracement or profit taking, said Junvum Kim, Asia Pacific senior sales trader at Saxo Markets. Energy stocks ended flat. The sub-index rose as much as 2.3% to hit its highest level since March 4 in early trade, following a jump in oil prices on escalating U.S.-Iran tensions. Gold stocks climbed 2.6%, limiting overall losses, as bullion prices firmed on escalating geopolitical tensions and a weaker dollar, while softer U.S. inflation data boosted expectations of Federal Reserve rate cuts. New Zealand's benchmark S&P/NZX 50 index rose 0.3% to finish the session at 12,649.1.
Yahoo
12-02-2025
- Business
- Yahoo
Valuation risks loom large over Australia's top bank CBA's first-half earnings
By Sameer Manekar (Reuters) - Commonwealth Bank of Australia's strong asset quality is expected to help the lender deliver marginal cash earnings growth in the first half, though analysts believe its lofty valuation seems untenable amid rising macroeconomic headwinds. Shares in CBA, Australia's biggest bank, have soared nearly 70% since November 2023 when the central bank lifted interest rates to a 12-year-high, propelling the stock to trade at more than 26 times its future earnings with a 4.1% dividend yield. In comparison, an MSCI gauge of world banks, in which JPMorgan, Bank of America, Wells Fargo and Citigroup hold an aggregate 34% weight, is trading at 11 times future earnings with a 3.65% dividend yield. But that has not deterred investors in Australian banks, particularly CBA. They have provided a perceived safe haven with their strong fundamentals and attractive returns, at a time when the resources sector, traditionally more dominant of the two, struggles with muted commodity demand from China. "Australian banks despite being low growth continue to offer stable and predictable earnings/dividends," UBS analysts said. The lender is widely expected to report flat to low single-digit growth in cash net profit on Wednesday, as per analyst consensus, with a slight uptick also forecast in net interest margin and common equity tier 1 capital - key metrics of profitability and spare cash. "CBA looks set to benefit from strong management execution, a reputation as a 'safe haven' within the banks and better credit quality from its larger skew to retail banking," Citi analysts wrote in a note. But while earnings may prove resilient, CBA's high trading multiples might be at risk from an easing in monetary policy and trade jitters, analysts say, with rotation back into miners - now trading at significant discounts - further threatening its frothy valuations. "The anticipated RBA (Reserve Bank of Australia) rate cut could compress net interest margins, challenging profitability even if lending increases," said Junvum Kim, senior sales trader at Saxo Asia Pacific. "If banks struggle to justify high valuations, investors might rotate into mining, where strong commodity prices could offer better returns," Kim said, adding trade war jitters and unexpected regulatory changes could further affect earnings. The other three of the "Big Four" lenders: National Australia Bank (NAB), Westpac, and ANZ Group are on a different reporting schedule than CBA and will issue limited first-quarter trading updates next week. All of the banks are expected to report little to no growth in their net interest margins, with NAB forecast to report a marginal drop in its first-quarter cash earnings. Sign in to access your portfolio
