The Motley Fool

The ASX 200 bank stock at greatest risk during the August reporting season

The downside risks to the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) banking sector is receding and short-sellers are on the retreat, although this isn’t to say that ASX banking stocks are in the clear.

The Commonwealth Bank of Australia (AX: CBA) share price, Westpac Banking Corp (ASX: WBC) share price, Australia and New Zealand Banking Group (ASX: ANZ) share price and National Australia Bank Ltd. (ASX: NAB) share price have bounced on a number of tailwinds.

This includes the federal election outcome, the stabilisation in the housing market and less onerous testing criteria for borrowers.

Who’re buying and selling ASX bank stocks

These positives were enough to scare short-sellers with the amount of short-interest in the sector dropping to around 0.9% compared to the five-year average of around 1.1%, according to Macquarie Group Ltd (ASX: MQG).

Short sellers are those who borrow stock to sell on-market in the hope of buying it back at a lower price later to profit from the difference. The bank that saw the biggest drop in short-interest is NAB followed by Westpac, ANZ and CBA.

NAB is also a winner when it comes to attracting buying interest from professional investors, such as fund managers.

“Bank positions across domestic institutional investors remained relatively stable throughout the quarter except for NAB, where there was sizable buying,” said Macquarie.

“Offshore investors continued to unwind their underweight positions across the sector (which we believe is partly driven by index funds buying banks as share-prices rebounded). Across institutional investors, NAB was the most bought bank.”

Retail investors not attracted to dividend yield

Interestingly, mum and dad investors were net sellers of bank stocks despite their attractive dividend yields and falling interest rates.

“Our data shows that retail investors were largest sellers of CBA, followed by NAB, ANZ and WBC,” added the broker.

“While banks are trading at an attractive relative sector valuation (banks are trading at ~29% discount to All Industrials ex. Banks), in our view, it remains difficult for the sector to outperform until the earnings downgrade cycle stops and clarity on the RBNZ [Reserve Bank of New Zealand] capital proposal is attained.”

ASX banks facing earnings pressure

Earnings are under pressure from a margin squeeze as falling interest rates are a negative for bank earnings. Banks are also likely to succumb to pressure to remove certain fees in the wake of the Banking Royal Commission.

While all banks are struggling on the earnings front, Macquarie believes that CBA is most at risk going into next month’s reporting season because it is trading at a premium to its peers.

Like to find out which is the Motley Fool’s favourite bank stock for FY20? Follow the link below to find out.

The Motley Fool’s #1 BANK STOCK for 2019

BRAND NEW! For a limited time, The Motley Fool Australia is giving away an urgent new investment report with all the details on our #1 BANK STOCK for the next 12 months and beyond…

Now, if you’ve been around this site for any length of time, you know The Motley Fool usually shuns bank shares.

But we’ve recently discovered a ‘hidden in plain sight’ bank stock with what we think is mouth-watering potential.

With the company boasting nearly 25% net profit growth every year for the last 5 YEARS…

And the shares paying a fully franked dividend that beats the pants off term deposits!

So if you like steady, high-growth income plays – we’ve got you covered!

You’re invited. Simply click the link below to discover our #1 ASX bank stock to profit in 2019. To scoop up your FREE copy, simply click the link below right now. But you will want to hurry – this free report is available for a brief time only.


Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, and Westpac Banking. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.