ASX bank shares have been a bit all over the place recently. They're certainly not alone, with many of the S&P/ASX 200 Index (ASX: XJO) constituents being particularly volatile.
The novel coronavirus pandemic has hit share valuations hard. There are concerns about the Aussie economy, and the big 4 banks are at the centre of that economy.
However, yesterday was a good day for ASX bank shares. The Commonwealth Bank of Australia (ASX: CBA) share price surged 4.20% while National Australia Bank Ltd (ASX: NAB) shares closed 6.33% higher.
But one good day doesn't mean the coast is clear. So, why are the Aussie bank shares so volatile and is it a good time to buy?
Why ASX bank shares are so volatile right now
One of the issues with the coronavirus pandemic is the great unknowns. No one knows for how long the virus will be around, and what the final toll of COVID-19 will be.
That makes valuing corporations and their future earnings quite tough. Sure, you can make educated guesses on which sectors will do well.
But the Aussie banks are the heart of the Aussie economy. They employ thousands directly and prop up many businesses around the country. They're also some of the largest corporations in the country and that means lots of buying and selling of ASX bank shares in recent weeks.
On the bullish side, you could argue the banks may be fine. They could earn additional interest on loan repayments for decades ahead, and have the implicit support of the Federal Government. Plenty of investors are buying up bank shares in the view that they're being oversold amidst the panic.
However, it's not all fine and rosy. Westpac Banking Corp (ASX: WBC) has flagged a $2.2 billion impairment as COVID-19 continues to bite. Many businesses and households are struggling and we may see more loan defaults. On top of that, the residential real estate market could be in for a downturn after decades of capital growth.
Is now a good time to buy?
I don't think I'll be buying ASX bank shares just yet. They're certainly strong dividend shares, and I think despite recent dividend cuts, will offer strong income in the years ahead.
However, there are some short-term challenges ahead. The rise of neobanks and disruption across the banking sector could hurt future growth.
That means ASX bank shares are not easy to value right now. If you're buying and holding for the long-term though, you could snap up a bargain in 2020.
