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Top fundies say ASX banks are “not the right place to have your money”

It’s safe to say that Aussie investors love our ASX banking shares. While most investors were appalled at what was revealed in last year’s Royal Commission, forgiveness seems to have been granted – all of the ‘big four’ banks have experienced double digit share price rises over 2019 so far.

But according to a report in the Australian Financial Review (AFR), respected fund managers Hamish Douglass and Andrew Clifford think that our banks are not the best place to be investing going forward.

Hamish Douglass is a co-founder of and chief investment officer at funds manager Magellan Financial Group Ltd (ASX: MFG). He had this to say:

I’m not enamoured if I look out the next decade that banks are the right place to have your money, yet 25 per cent of [Australia’s] equity market is in banks… very low interest rates aren’t good for savers and it’s not good for banks.

Andrew Clifford, chief fund manager at Platinum Asset Management Ltd (ASX: PTM) was also bearish on owning banks, stating:

The problem is the business of being a bank is getting deposits in, that’s normally what most banking businesses are about. When rates go to zero, banks still have to maintain their cost bases and extensive branch network.

In terms of the broader outlook for markets, both Mr Douglass and Mr Clifford see the current interest rate environment as the biggest risk factor.

Saying that record low interest rates and risk-free bond rates have been aggressively priced in to share markets, Mr Douglass is unwilling to rule out a situation where both US wage inflation and consumer price inflation increases from its current lows.

“That would force a rethink of the dynamic which has dominated shares in the era of ultra-easy monetary policy and unleash a violent correction,” says Douglass.

Foolish takeaway

I do agree with both Mr Douglass and Mr Clifford that our ASX banks likely won’t enjoy the same kind of successes that they have experienced over the past two decades. If interest rates stay lower for longer, even the banks’ cherished dividends may not be safe.

I also think that both property and share market investors will get a very rude awakening if interest rates start rising again. We investors have a nasty tendency to assume the status quo will last forever, but history proves that things can turn quickly. So make sure you’ve thought of all possible scenarios when your building your portfolio!

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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