A change of focus for retail investors may be at hand, as Australian household ownership of ASX bank shares appears to be reducing.
As reported in the Australian Financial Review, analysis by investment outfit Jarden found that retail (household) investors sold down three major ASX bank shares in the three months to 30 June 2024.
The Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and ANZ Group Holdings Ltd (ASX: ANZ) reportedly saw retail ownership levels reach a record low.
However, Jarden noted that Westpac Banking Corp (ASX: WBC) was an exception due to its "higher franked dividend yield and the appeal of its recent special dividend".
Who is buying the ASX bank shares?
Jarden said in a note that overseas ownership of banks continued to rise quarter over quarter. ANZ's offshore ownership increased to 30%, which is the highest among the big banks. CBA's offshore ownership has reached 23.8%.
Jarden analyst Jeff Cai told the AFR:
Anecdotal industry feedback suggests the recent increase in offshore buying in CBA is more driven by index funds rather than active asset allocation away from Asia, but this is difficult to conclusively validate.
According to the AFR, market participants have reported that some Asian investors are exiting China and "seeking shelter" with ASX bank shares.
Tribeca Investment Partners portfolio manager Jun Bei Liu pointed out that Australia's economy was performing quite strongly compared to other Asian markets:
Australia stacks up pretty well compared to its peers within the region. Our economy is not slowing down as fast and it's holding up OK. And as a foreign investor, you'll look at Australia and realise it's a safe place to be and hence why you're seeing this transition into a lot of foreign ownership.
Are the financial stocks actually opportunities?
Tribecca's Liu thinks the banks continue to perform relatively well, so she is "neutral" on the ASX bank shares:
The next six months still look pretty OK for the banks, unless our economy is heading for a recession and a tail-risk event takes place.
They only continue to do better than expected, and I think they will continue to have capital return opportunities, whether it's buybacks or special dividends. So combine all of that and you're looking at reasonable returns.
However, the ASX bank share valuations are increasing in price/earnings (P/E) ratio terms, with their share prices rising faster than earnings in the last 12 months.
According to Commsec forecasts, the CBA share price is valued at 23x FY25's estimated earnings; NAB is valued at 16x; Westpac is 15x, and ANZ is valued at 13x FY25's estimated earnings.
When the P/E ratio keeps climbing, short-term returns could become more unlikely because the valuation becomes more unsustainable. In my opinion, the shorter-term earnings updates will need to be relatively positive to uphold these forward P/E ratios.
