The past three months have been painful for big four bank shareholders with the market price for the stock falling by more than 10%.
Despite its promising progress in Asia, Australia and New Zealand Banking Group (ASX: ANZ), or ANZ, hasn't been immune from the selloff.
Down 14.5% since the beginning of April, shareholders are likely asking themselves, "Is it time to sell out?" Meanwhile, investors are likely thinking this could be a sound buying opportunity.
To answer this question however we should first ask ourselves…
What's changed?
Over the past two months, a number of important changes have taken their toll on ANZ's share price.
The first is interest rates. Indeed, despite lowering the official cash to just 2% in May the Reserve Bank of Australia has finally dropped its easing bias. That means, further interest rates cuts may not be guaranteed.
As a renowned dividend-paying stock, ANZ shares have benefitted immensely from lower interest rates because they have fuelled demand for high-yielding stocks.
Operationally, low-interest rates are also a boon for property investors, businesses and those seeking credit – adding an extra layer of demand for bank stocks.
Another catalyst which may help explain the recent selloff in ANZ shares is their eye-watering valuation. In fact, even at today's seemingly discounted prices ANZ shares change hands at 2.2x tangible book value per share.
That means investors are currently paying more than double the assets on the bank's balance sheet. A rule of thumb for bank stocks is to purchase them at, or below, parity with book value (i.e. 1.0x) depending on the quality of its assets.
However, perhaps the most alarming change among the big four has come from the bank executives themselves. ANZ CEO, Mike Smith, joined a chorus of banking executives in saying the outlook for the sector remains subdued.
"For the foreseeable future, we will be operating in a lower growth environment in which there will continue to be occasional volatility and shocks," Mr Smith said during the bank's recent interim results announcement.
Should you buy, hold, or sell ANZ shares?
ANZ shares have come under pressure in recent times as investors reacted to both its lofty share price and a mixed growth outlook. As it stands however its shares continue to be priced for strong growth well into the future.
Unfortunately, given the subdued outlook for the economy, investors must be mindful that they should not pay for anticipated future growth which may never eventuate. Therefore, I'd rate ANZ as a hold.
