Why were so many CBA shareholders cashing out in September?

Investors made a cash withdrawal from their portfolio in September.

| More on:

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
  • A number of ASX 200 shares went backwards in September, including CBA shares
  • In September, the CBA share price declined 7%
  • Investors may be spooked by the RBA's commitment to get inflation under control

The Commonwealth Bank of Australia (ASX: CBA) share price went downhill in September. It fell by 7%. That compares to the S&P/ASX 200 Index (ASX: XJO) falling by 7.3%.

This means that the ASX 200 bank share slightly outperformed the ASX share market last month.

While 0.3% outperformance isn't that much in the grand scheme of things, every little bit helps. Particularly when we're talking about such a large business on the ASX. At the time of writing, CBA has a market capitalisation of $154 billion.

Four investors stand in a line holding cash fanned in their hands with thoughtful looks on their faces.

Image source: Getty Images

What happened to the CBA share price last month?

There is plenty of volatility going on in the ASX share market and the global share market.

Investors are having to deal with factors like elevated inflation and higher interest rates.

At the end of the month, CBA announced it had met its enforceable undertaking obligations, which released the remaining operational risk capital overlay of $500 million. This represents an increase in the common equity tier 1 (CET1) capital of 15 basis points.

In early September, the Reserve Bank of Australia (RBA) decided to increase the cash rate target by 50 basis points (0.50%) to 2.35%.

Interest rate intervention

The RBA said that it's committed to returning inflation to a range of between 2% to 3% over time. It pointed out that the outlook for global economic growth has deteriorated due to "pressures on real incomes from high inflation, the tightening of monetary policy in most countries, Russia's invasion of Ukraine, and the COVID containment measures and other policy challenges in China."

Inflation is expected to be above 4% in 2023 and then around 3% in 2024. In other words, it could take more than 12 months for inflation to get close to its target range. How long it takes to get inflation under control could be a key factor for the CBA share price.

The labour market is one of the main things that the RBA said it's keeping an eye on. The labour market is "very tight and many firms are having difficulty hiring workers. Wage growth has also picked up from the low rates of recent years."

Households are in a mixed position – mortgage interest rates are rising, but many households have also "built up large financial buffers and the saving rate remains higher than it was before the pandemic".

Is the RBA done increasing? It seems highly unlikely. The RBA's latest monthly statement included this section:

Price stability is a prerequisite for a strong economy and a sustained period of full employment. The Board expects to increase interest rates further over the months ahead, but it is not on a pre-set path… The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.

Why does this matter?

Most of CBA's business is about lending, so what is happening with interest rates could be key for the business and the CBA share price.

While plenty of analysts recognise that a higher RBA interest rate is likely to be helpful for ASX 200 bank share profitability, some of them are also cautious about what higher interest rates could mean for the resilience of their loan books.

CBA lends many billions to households, so an increase in loan arrears could be painful for the big bank.

Australian households are among the most indebted in the world. Higher interest rates – with no sign yet of central banks stopping – could have a knock-on effect on CBA.

Time will tell whether the pessimism around the CBA share price is justified.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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

Gold piggy bank on top of Australian notes.
Bank Shares

$20,000 of CBA shares can net me this much passive income!

How much passive income can shareholders bank on?

Read more »

A corporate team stands together and looks out the window.
Bank Shares

Here's the dividend forecast out to 2027 for AMP shares

Is this ASX financial stock a strong option for dividends?

Read more »

Woman with a concerned look on her face holding a credit card and smartphone.
Bank Shares

Are ASX bank shares a buy in August?

ASX bank shares have climbed higher in July so far. What's ahead for next month?

Read more »

Man holding different Australian dollar notes.
Bank Shares

Macquarie's verdict on the ASX banks: buy, sell or hold?

The big four are investor favourites, but are they good buys right now?

Read more »

Young businesswoman sitting in kitchen and working on laptop.
Bank Shares

Are Macquarie shares a standout buy?

Three divisions moved forward, one went backwards, and a new name is preparing to take control.

Read more »

Worried woman calculating domestic bills.
Bank Shares

How should I value the CBA share price?

The bank’s quality is widely recognised. The harder question is how much is already reflected in the price.

Read more »

Australian dollar notes around a piggy bank.
Bank Shares

How many Macquarie shares do I need to buy to generate $10,000 in passive income?

Macquarie could be a top choice for dividends.

Read more »

A man takes his dividend and leaps for joy.
Bank Shares

How many CBA shares do I need to buy for $12,000 of passive income?

CBA is the second-largest ASX 200 stock behind BHP Group in terms of market capitalisation.

Read more »