Commonwealth Bank of Australia (ASX: CBA) is up 0.04% to $101.82 at the time of writing.
The biggest of the ASX bank shares has shown extraordinary share price stability in 2022, down just 0.71% year to date.
CBA is in a good position to weather the current economy, according to Fidelity International head of investments Paul Taylor.
Taylor said their flagship Australian Equities Fund was positioned for higher interest rates, weak consumer spending, and a potential recession in 2023.
Why buy CBA shares?
Taylor writes on Livewire that the fund is underweight on ASX bank shares in general — except for one.
Taylor says:
… we have a significant over-weight position in Commonwealth Bank due to its strong balance sheet and superior technology platform. CBA also benefits the most from rising interest rates, steepening yield curve and improved net interest margins given its very significant deposit base.
Net interest margins (NIMs) have been a hot topic since the Bank of Queensland Ltd (ASX: BOQ) released its FY22 results.
The bank revealed a better-than-expected exiting NIM for the September quarter.
The Bank of Queensland share price soared by 8% on the day of the announcement on 12 October.
The big four banks also went up on the back of this news. CBA shares are up 5.8% since the Bank of Queensland released its results.
ASX investors bid bank shares up because they figured this could bode well for other banks and their NIMs.
We'll find out tomorrow with Australia and New Zealand Banking Group Ltd (ASX: ANZ) the next significant ASX banking business to report its FY22 results.
Will there be a recession?
Taylor said:
Going forward, the market will be more focused on interest rates, the prospect of an economic slowdown and maybe even a recession in 2023.
The Reserve Bank of Australia (RBA) has recently taken official interest rates from zero to 2.35%. The US Fed has been more aggressive with official interest rates now sitting between 3 and 3.25%.
However, the Fed in particular, seems determined not to repeat the policy mistakes of the 1970s and 1980s when they were criticised for being slow to act in the belief inflation was transitory. They now seem to be erring on the side of over action.
With interest rates expected to keep rising, the likelihood that the US and Europe will enter a recession in early 2023 is increasing but it's less certain if Australia will follow suit.
