ASX 200 bank shares have had an incredible run since November, with stock prices reaching multi-year highs for all of them except the Bank of Queensland Ltd (ASX: BOQ) in recent months.
The chart below plots the upward trajectory of ASX 200 bank shares from 1 November to date.
Goldman Sachs reckons ASX 200 bank shares are the most expensive bank stocks in the world. The broker says valuations are "skewed to the downside" from here.
Another top broker, UBS, says its clients also view bank shares as "very expensive". However, they see few reasons why the stocks would be fundamentally derated any time soon.
Let's investigate further.
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They're expensive, but why would they fall?
In The Australian, UBS analyst John Storey discussed 60 one-on-one meetings that the broker recently held with clients.
He said a lot of investors were keen to understand why the ASX 200 bank shares had outperformed.
Some clients quizzed the broker about whether the banking sector is "becoming utility-like as the operating and business models become more commoditized".
Storey said:
The sector's relative outperformance, within the context of light investor positioning, has clients asking why, and more importantly, what should they be doing from here.
UBS has a sell rating on all ASX 200 bank shares except Australia and New Zealand Banking Group Ltd (ASX: ANZ) and Macquarie Group Ltd (ASX: MQG).
Storey said bank valuations relative to GDP are currently near their longer-term averages of 21%. The most recent trough was 15% in 2020, and the most recent peak was 25% in 2013.
So in this context, the bank stocks aren't too overrated.
He added:
However, compared to countries like, Sweden, Spain and Canada, the Aussie banks don't appear overly expensive, albeit earnings have held up better in these markets.
Goldman has a 'negative view' of ASX 200 bank shares
Goldman Sachs recently said the banks' valuations had grown "despite weaker relative profitability".
The broker said: "We recently took a more negative view on Australian banks, reflecting absolute and domestic relative valuations being heavily skewed to the downside."
The biggest Australian bank, Commonwealth Bank of Australia (ASX: CBA), reset its record price again last week at $128.25 per share.
Goldman says CBA shares "are in uncharted valuation territory" based on the premium they usually trade for relative to their return on equity (ROE) forecast.
The broker has a sell rating on CBA and a 12-month share price target of $82.61. This implies a near-35% fall from today's price of $126.88.
Asset Management portfolio manager Dominic Mlcek questions the "lofty valuations" of ASX 200 bank shares today.
"Given the lack of growth outlook in our view, we're maintaining an underweight exposure towards the big four," Mlcek said.
