Can CBA shares hit a new record high in 2020?

Commonwealth Bank of Australia (ASX: CBA) shares have been racing higher to start the year – but can they hit a new record high in 2020?

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Commonwealth Bank of Australia Ltd (ASX: CBA) shares climbed 0.98% higher yesterday to $85.44 per share. This upward trend has continued this morning, with the Commonwealth Bank share price opening up 0.48% at the time of writing to $85.85 per share.

That’s a new 52-week high for Australia’s largest listed company and puts another record benchmark within its reach. But can CBA shares hit a new all-time high in 2020?

Why CBA shares are at a new 52-week high

It’s been a strong start to the year for Australia’s biggest bank, with CBA shares up more than 6.5% to start the year. And it’s certainly been an eventful few months for Commonwealth Bank.

The bank’s Colonial First State Investments Ltd (CFSIL) business was slapped with a class action on 23 January. Shine Lawyers have also brought proceedings against the CommInsure Life business.

However, those proceedings haven’t slowed down Commonwealth shares in the early part of the year. One of the big announcements this week was the Aussie bank wading into the buy now, pay later (BNPL) sector.

Swedish BNPL giant Klarna is launching in Australia with the backing of Commonwealth Bank.

Klarna is one of the world’s biggest digital payments providers with more than 85 million customers and 200,000 merchants. Compare that to Afterpay Ltd (ASX: APT)‘s 5.2 million customers in late August 2019 with 35,300 merchants on offer.

Commonwealth Bank has tripled its investment in Afterpay’s European rival for a total investment of US$300 million. CommBank and Klarna are set to jointly fund Klarna’s Australia and New Zealand business while the bank retains the right to partner the group in Indonesia.

Can Commonwealth Bank hit a new record high?

The highest closing price for CBA shares is $95.80 back in March 2015. Given the current $85.44 valuation and some positive momentum, that doesn’t look too far out of reach.

Many in the market thought the banks would never recover from the 2018 Financial Services Royal Commission. But the much-feared “structural separation” never occurred and the big four banks have been rebounding strongly in recent months.

There are a couple of headwinds that I can see, mainly around the interest rate environment. Lower rates have meant more borrowing and therefore more revenue to drive CBA shares higher this year.

However, if volumes drop off there just isn’t the same pricing available to the banks right now. The other risk is an increase in the interbank bill swap rate, which the banks rely on for their funding.

If we see a mismatch in interest rates between the United States and Australia in particular, that could create a profit margin squeeze for the Aussie banks and drive earnings lower.

I’ll be keeping a close eye on Commonwealth Bank shares when the bank reports its results on 12 February.

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Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. 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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