Banking bubble about to burst

Yesterday the S&P/ASX 200 (ASX: XJO) (^AXJO) was dragged down over 100 points. Leading the way were the big four banks, making one think that this could be the end of the banking bubble.

The big four lost an average of 3.5% of their share prices, the biggest one day loss in quite some time. Westpac (ASX: WBC) and ANZ (ASX: ANZ) were the hardest hit, falling 4.07% and 3.99% respectively, but they weren’t alone. The S&P/ASX 200 Financials (ASX: XFJ) was down 2.7%.

Earlier in the week, I noted that UBS analysts had placed the crown of the world’s most expensive bank upon the shoulders of the CBA (ASX: CBA), valuing it at $60 per share. Since the report was released on Monday, the CBA has fallen from over $74 per share to open today at $69.71 – a 6% discount.

With tremendous gains over the past 12 months, it has to be asked if banking stocks are now correcting themselves for the 50% increases they have seen. The National Australia Bank (ASX: NAB) has been the least affected of the big four. Despite falling 3.09% yesterday, it’s down a modest 5.46% from the beginning of the week.

With the dollar creeping lower every day, investors need to start asking themselves whether the banks are the most appropriate place to put hard earned cash. There are many stocks that provide safety and high yields that are comparable to the banks and savvy investors should be seeking them out.

Foolish takeaway

Australia’s top financial institutions should be ready to face some tougher share prices in coming months, as interest rates drop, the dollar falls and foreign investment from the mining boom contracts. Even the ‘dogs’ have increased in value in the current bull market and now prices are beginning to plateau, the best stock pickers will be in high demand and working overtime to find some hidden gems.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz owns shares in ANZ. 

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