Key points
- Morgan Stanley is bullish on the banking sector in 2022
- Analysts at the firm upgraded ANZ to a buy in a note yesterday
- The broker raised its price target by almost 10% to $31 per share
- The ANZ share price has climbed 17% in the last 12 months
The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price edged into the green today, finishing 0.07% higher at $28.58.
While there's been nothing particularly sensitive out of ANZ's camp today, the team at Morgan Stanley upgraded the bank to a buy in a note yesterday.
Morgan Stanley is bullish on the banking sector in 2022. The broker reckons the ASX banking universe can outperform the benchmark S&P/ASX 200 Index (ASX: XJO), riding on a number of industry-specific tailwinds.
As seen on the chart below, the ANZ share price (blue) has lagged the benchmark index (red) since June last year, leading many to question what's in store next for the banking giant's investors.
However, the gap has started to converge, and ANZ is beginning to regain steam once more as we roll into the new year, adding weight to Morgan Stanley's thesis.
The story is backed by strong inflows into financials since the new year, given their defensive nature and sensitivity to the interest rates cycle.
If economists at Westpac Banking Corp (ASX: WBC) have a crystal ball, the shift in rates will come on faster and stronger from 2022, according to a research note today. The bank is predicting 5 rate hikes from the RBA in 2022-24, in stark contrast to the RBA's language on the matter.
So why was the ANZ share price raised to a buy?
Analysts at Morgan Stanley are constructive on ASX banking shares like ANZ due to the changing outlook for interest rates from 2022 onwards.
The firm reckons that earlier-than-expected rate hikes from the RBA, coupled with higher fixed rates on mortgage products, will decompress margins throughout the sector.
However, while it remains bullish, the firm cautioned investors on the potential impact higher rates might have on Australian mortgage credit and the housing market. Notably, higher fixed rates mean higher interest payments on home mortgages, meaning less disposable income for those households.
Nevertheless, Morgan Stanley itself is banking that total loan growth in the sector should be higher in FY22, coming off such an anomalous year in 2021.
Alas, the broker raised its ANZ share price target by almost 10% to $31 in its note yesterday and upgraded the stock to a buy while doing so.
Analysts have conviction on the bank given its well-diversified business exposure, improving loan growth outlook, and an equally improved outlook for margins.
The broker is joined by both Bell Potter and Macquarie, who rate ANZ as a buy and each value the company at $30 per share.
Aside from that, Goldman Sachs, Jefferies, and Morgans agree with their investment banking associates and urge clients to buy ANZ on a long-term view.
ANZ share price summary
Unlike some of its banking major colleagues, the ANZ share price fared well in 2021 and has subsequently climbed almost 17% in the last 12 months.
So far this year its shares have climbed almost 4%. As such, the bank is ahead of the ASX 200's return this year to date, with the broader index falling by 1.37%.
