Amid the chaos of 11 interest rate rises over the last year, there is one sector that's been forgotten as a beneficiary.
The banking sector, which dominates the S&P/ASX 200 Index (ASX: XJO) alongside mining, derives a natural benefit from higher interest rates paid by borrowers.
The enviable strength of the major four banks in Australia meant that the local industry even admirably fought through the storms that troubled the US and European institutions in recent months.
In fact, the S&P/ASX 200 Banks (ASX: XBK) index is only down 2.2% year to date, while its American cousin Dow Jones US Banks Index (DJX: DJUSBK) has taken a 14.1% tumble.
That's all while the Aussie stocks paid out handsome dividend yields.
Shaw and Partners portfolio manager James Gerrosh reckons Aussie banks unfairly get a bad rap.
"The press so often likes to knock our banks, but they've definitely helped most Australians super over the last few years," he said in a Market Matters newsletter.
So which ASX bank stocks would he be invested in right now?
Image source: Getty Images
Fierce competition is 'running out of steam'
Gerrish revealed that his team is "long and bullish" towards National Australia Bank Ltd (ASX: NAB).
"NAB is set to release its 1H23 result this Thursday with the market looking for NPAT of $4,148 million and an accompanying 91 cent fully franked dividend," he said.
"The headlines in the three bank results will be one thing but the market will also be looking very closely at key metrics such as net interest margins (NIM), plus of course rhetoric around the state of play economically."
A once-in-a-generation interest rate hike sequence has definitely assisted the banks, but strong competition in the banking industry has cancelled out this tailwind somewhat.
But that seems to be peaking.
"We actually believe the intense competition between the country's largest lenders is running out of steam with Westpac Banking Corp (ASX: WBC) hiking rates for new mortgages last month by +0.1% after the RBA kept rates on hold."
'Surprises on the upside'
The other big four bank that Gerrish's team favours is ANZ Group Holdings Ltd (ASX: ANZ), which delivers its update on Friday.
"Market Matters is long and bullish towards ANZ," he said.
"The market [is] looking for net profit after tax (NPAT) of $3,538 million and an accompanying 79 cent fully franked dividend."
ANZ is the only big four to have increased share price this year, but the current entry point still looks tempting.
"The valuation story is attractive with ANZ trading at book value, and below historical averages, compared to other major banks."
Gerrish's third "long and bullish" pick is not from the big four, but is still a giant in the industry.
"We like Macquarie Group Ltd (ASX: MQG) medium [term], which, as a company, has proven its ability to increase earnings even in a tough economic backdrop."
It will also provide a financial update on Friday.
"Macaquarie's retail banking business continues to outperform the entire sector and has consistently posted record mortgage net flows," said Gerrish.
"Overall, we can see surprises on the upside in Friday's numbers."
