The banking sector largely remains out of favour despite the recent bounce in the share prices of some of our bank stocks and if you are wondering who has been fleeing the sector – the answer might surprise you.
According to Macquarie Group Ltd (ASX: MQG), it's mum and dad investors who have been dumping the stock although ASX bank stocks remain a favourite target among short-sellers.
The big four banks are under pressure with the Commonwealth Bank of Australia (ASX: CBA) share price leading the fall today with a 0.6% drop to $74.67 ahead of the market close.
The National Australia Bank Ltd. (ASX: NAB) share price is next with a 0.4% decline to $25.34, while the Australia and New Zealand Banking Group (ASX: ANZ) share price is 0.3% lower at $27.26 and Westpac Banking Corp (ASX: WBC) is just under breakeven at $27.56.
Why retail investors are exiting
The exit of retail investors is understandable with Macquarie speculating that the potential change in franking credits could be prompting many to dump bank stocks.
If federal Labor were to win the next election and form government, it will disallow the cash refund of excess franking credits to investors who are not on the pension.
Income investors, particularly self-funded retirees, have loaded up on bank stocks in the past as the sector has been a relatively reliable fully-franked dividend payer.
While retail investors remain overweight on Commonwealth Bank, Macquarie thinks the stock will come under pressure if Bill Shorten become prime minister and changed the franking rules.
Banks still a favourite of short-sellers
The broker also noted that short-interest in banks remain at elevated levels even after the release of the final report from the Banking Royal Commission.
"Despite ongoing material underperformance in 2018 and 1Q19, short interest in the majors remains at ~1.4%, above the 5-year average of ~1.1%, suggesting potential upside risk to share-prices if banks were to surprise with better than expected results or outlook commentary, which at this stage we see as a relatively low probability outcome," said the broker.
Banks are on the backfoot as the housing market slump, margin pressure and a potential increase in the regulatory cash reserve ratios in New Zealand have dragged on sentiment towards the sector.
Is there a buying opportunity?
What's interesting is that retail investors seem to be rotating out of the big four and into regional banks with Macquarie noting that this group were net buyers of the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price and Bank of Queensland Limited (ASX: BOQ) share price.
I too have low expectations for the big banks (and I won't touch the regionals) going into the reporting season, which kicks off tomorrow.
However, I will be watching to see if any sell-off in the sector could be a buying opportunity as I believe the big four are finally starting to look interesting for investors like myself who is chronically underweight on the sector.
Let the fun begin, fellow Fools!
