Why is the CBA share price outpacing the ASX 200 in 2022?

ASX financial shares are among the few that could directly benefit from rising interest rates.

| More on:
A woman in a bright yellow jumper looks happily at her yellow piggy bank representing bank dividends and in particular the CBA dividend

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The CBA share price continues to outperform the ASX 200 this year 
  • The big bank could see more net interest income from a higher interest rate environment 
  • CommBank could face headwinds if higher rates reduce its loan book growth 

Commonwealth Bank of Australia (ASX: CBA) may not be delivering the best returns of the S&P/ASX 200 Index (ASX: XJO) banks in 2022, but it's certainly outpacing the benchmark index itself.

The CBA share price is following the bulk of the market lower today, down 1.6% to $101 per share in late morning trade. This comes on the back of another day of heavy selling in US markets yesterday (overnight Aussie time), with the S&P 500 closing down 3.2%.

Today's selling also sees the CBA share price dip into the red for the calendar year, down 1.1%.

While that's not the result investors would like to see, it's well ahead of the 8.3% year-to-date loss posted by the ASX 200. And let's not forget that CommBank also paid out a $1.75 fully franked interim dividend on 30 March.

So why is the big bank outpacing the index?

Rising rates offering tailwinds to financial shares

One of the biggest factors dragging on ASX shares is the realisation that inflation around the Western world is above central banks' target zones, ushering in a long dormant scenario of rising interest rates.

Higher rates increase the costs of tomorrow's money. And the spectre of a series of rate hikes has hit high growth tech share the hardest. The S&P/ASX All Technology Index (ASX: XTX), for example, is down 33% in 2022.

But the CBA share price has weathered the storm a lot better, alongside most financials. While still down for the year, the S&P/ASX 200 Financials (ASX: XFJ) has only lost 2.7%.

Part of that resilience is that financial shares are among the few sectors that can benefit from higher interest rates.

"Banks and financials tend to perform well in rate hike cycles, this is because higher interest rates are generally beneficial to banks since they allow them to earn more net interest income," said eToro market analyst Josh Gilbert.

EY's banking and capital markets leader, Tim Dring also pointed to higher rates offering a lift to the CBA share price and other bank shares:

While margin compression is likely to continue in the short term, the rising interest rate cycle should ease NIM [net interest margin] pressures and lead to improved profitability for the banks over the medium term.

But it's not all smooth sailing ahead for the banks. "Ongoing economic risks point to continued uncertainty for the banking sector's outlook," Dring added.

And while higher rates do increase the banks' lending margins, they could also result in an increase in bad debts and slower loan growth moving forward.

CBA share price snapshot

Though it's just dipped into the red for 2022, the CBA share price remains up 6.2% over the past 12 months. That compares to a 2.9% loss posted by the ASX 200 over that same period.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A corporate female wearing glasses looks intently at a virtual reality screen with shapes and lights representing Block shares going up today
Bank Shares

Are Westpac shares a buy following the bank's big tech update?

Is now a good time to buy the banking giant's shares? Let's find out.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
Bank Shares

Own CBA shares? It's payday for you!

A dividend is heading to CBA shareholders’ bank accounts.

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
Bank Shares

Are CBA shares really worth $120?

It has been a good year for ASX bank shareholders.

Read more »

a group of people sit around a computer in an office environment.
Bank Shares

Westpac shares push higher on $9.8b technology simplification plan

Westpac plans to spend big on technology to close the gap on its rivals.

Read more »

A worried woman looks at her phone and laptop, seeking ways to tighten her belt against inflation.
Economy

NAB boss issues dire prediction for Aussie economy

NAB’s CEO has issued a stark warning on the outlook for Australia’s economic growth.

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Own CBA shares? Here's the tech stock the banking giant just invested in

CBA has made an interesting investment. Here's what you need to know.

Read more »

A woman gives two fist pumps with a big smile as she learns of her windfall, sitting at her desk.
Bank Shares

ANZ shares charge higher on $57.5 million class action settlement news

ANZ shares have continued their positive run on Monday.

Read more »

Two people comparing and analysing material.
Bank Shares

Better buy: CBA or Westpac stock?

Which ASX bank share is a better buy?

Read more »