Why the CBA (ASX:CBA) share price and these ASX stocks could get a $100bn boost

Underperforming ASX banks and insurers may soon be getting a $100 million boost to their fortunes, according to a leading broker.

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Underperforming ASX banks and insurers may soon be getting a $100 million boost to their fortunes, according to a leading broker.

That would mark a turnaround for these ASX stocks even though they’ve benefitted from the recent S&P/ASX 200 Index (Index:^AXJO) rally.

The share market held up better than what many feared through the US election. It now is about to get a further $100 billion boost from the Reserve Bank of Australia (RBA).

QE tide to lift ASX stocks

Our central bankers are committing a further $100 billion to quantitative easing (QE) – a program that will see the RBA purchase government bonds.

The effect of this is to lower interest rates and inject extra cash into the financial system to stimulate the COVID‐19-stricken economy.

QE programs have a tendency to drive equity markets higher too, and this time is no exception.

Why CBA and other ASX banks and insurers will benefit this time

However, Macquarie Group Ltd (ASX: MQG) believes that ASX banks and insurers will benefit more this time round as opposed to tech stocks.

The ASX tech darlings, such as the Afterpay Ltd (ASX: APT) share price and Appen Ltd (ASX: APX) share price, have received a big boost from previous QE injections.

This is evidenced by the rapid expansion in their price-earnings (P/E) ratios earlier in the year.

“The sectors that benefit more from the next $100bn of QE may be different to the ones that saw the largest PE expansion over April to October,” said Macquarie.

“In particular, we may see more PE expansion from Insurance and Banks. The PEs for both sectors initially rose with RBA Investments, but then de-coupled in September as the market anticipated further RBA easing.”

Upside potential for the CBA share price

The broker noted that unless the RBA moves to suppress the yields on longer-term bonds, there is more upside than downside risk for the 10-year yields over the next six months.

Rising yields will allow P/Es of banks and insurers to recouple with the RBA’s QE investments. If this prediction comes to pass, the Commonwealth Bank of Australia (ASX: CBA) share price, National Australia Bank Ltd. (ASX: NAB) share price and QBE Insurance Group Ltd (ASX: QBE) share price could outperform.

Good news not in the price

What’s more, the market is yet to price in the $100 billion tailwind for these stocks.

“With all the focus on the US Election, we think the significance of the RBA’s additional $100bn in QE has not received the attention it deserves,” added Macquarie.

“Sure A$100bn looks small compared to the US$3tr added by the [US Federal Reserve] in 2020, but Australia’s economy is smaller.”

But ASX banks and insurers aren’t the only ASX stocks well placed to deliver outsized returns in 2021. The experts at the Motley Fool have picked another group that that think make great buys for the year ahead.

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Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia and National Australia Bank Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. 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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