It's hard not to notice the incredible run that the ASX 200 bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have been on over the past 12 months or so.
Since this time last year, all four of the ASX 200 major banks have exploded higher, helping to push the S&P/ASX 200 Index (ASX: XJO) itself to new all-time heights.
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Banks propel ASX 200 to new record highs
Take the market leader, CBA. The CBA share price has defied its critics to blaze through a series of new record highs over the past year. Just this week, we saw this ASX bank stock rocket to a new high watermark of $134.90 a share. A year ago, those same shares were going for just $105.70, meaning CBA has bagged a 27.25% gain since last July.
Westpac stock has done even better. It's sitting on a 28.9% rise over the past 12 months, going from $22.34 a share to today's $28.78.
ANZ Group Holdings Ltd (ASX: ANZ) is the clear laggard of this group. But ANZ has still had an objectively successful year, rising from $25.75 a share to today's $28.51, a gain worth 10.75%.
But it's National Australia Bank Ltd (ASX: NAB) that really takes the cake. Back at the end of July 2023, NAB stock was asking $28.78 a share. Today, those same shares are worth $37.74 at the time of writing, a good 32.8% above where they were 12 months ago.
CBA is now the largest share on the ASX 200 Index. NAB, Westpac and ANZ are the index's fourth, fifth and sixth largest stocks, respectively. So it's no surprise to see the ASX 200 vault to new records in 2024, given the substantial increases in valuation that all four of these banks have enjoyed.
Check it out for yourself below:
So investors all around the country owe these banks some thanks. Even if you don't own CBA, NAB or the other bank stocks directly, their rises have almost certainly given ASX index funds and our superannuation accounts a big boost over the past 12 months.
Would it be crazy to buy bank shares today?
But let's talk about the future. Would you be crazy to even consider buying these ASX 200 bank shares today after they have notched these uncharacteristic gains over just the past year alone?
Well, an analysis from Atlas Funds Management that was released last week aims to shed some light on that question.
Atlas starts by pointing out that the world's largest banks rarely occupy their roost for long. It identifies Sumimoto, Citibank, and Royal Bank of Scotland, which were all once among the largest banks in the world but today sit substantially below (80%-plus) their peak valuations in some cases.
However, the fund manager goes on to argue that ASX bank shares are structurally quite different from most other banks around the globe. And that might make all the difference when considering an investment today.
For one, Atlas argues that the big four's focus on their domestic markets, rather than an eye on international expansion, has done them wonders, stating, "Australian banks have learnt from their previous mistakes around international expansion and are focusing on their domestic markets, in which the banks generally have a strong history of profitable business".
Thanks to the local oligopoly that the big four enjoy in Australia, Atlas also reckons "[the] banks' bad debts remain at all-time lows, and profits continue to be strong". Together with Australia's cultural preferences towards home ownership, as well as meaningful share buyback programs, the fund manager argues that the banks' high share prices might not be as expensive as they first appear.
The fund manager concludes with some observations about CBA:
Although, CBA has diverged from its long-run price-to-earnings of 16x forward earnings to over 22 times, Atlas still believes that CBA will have a good result in August with the announcement of further on-market share buybacks.
CBA is still the leader for the banks in marketing, technology, customer service, and quality of management and has the highest return on equity, but does it deserve this high of a premium?
It seems only hindsight will reveal the answer.
