ASX mining shares and ASX bank shares are experiencing significantly different performances at the moment.
Since 20 September 2024, the Commonwealth Bank of Australia (ASX: CBA) share price is down 7%, the Westpac Banking Corp (ASX: WBC) share price is down 3%, the ANZ Group Holdings Ltd (ASX: ANZ) share price has fallen 4%, and the National Australia Bank Ltd (ASX: NAB) share price is down more than 5%.
It's a very different story for the large ASX iron ore shares. Since 20 September 2024, the BHP Group Ltd (ASX: BHP) share price is up 6%, the Rio Tinto Ltd (ASX: RIO) share price is up 7% and the Fortescue Ltd (ASX: FMG) share price is up 7%.
What's going on? There seem to be two significant factors at play, in my eyes.
Chinese economic support
As my colleague Bronwyn Allen reported, the Asian superpower China has recently announced several initiatives to help its economy.
Among the various measures, the seven-day repo rate has been cut by 20 basis points (0.20%), existing mortgage rates have been reduced by 50 basis points (0.50%), and the banks' reserve ratio requirement has been cut by 50 basis points (0.50%).
The Australian Financial Review reported on comments from Morgan Stanley equity strategist Laura Wang who said:
We take the announced measures as an absolute positive move given their unprecedented nature.
The long-term sustainability of market sentiment improvement and rebound rally are more dependent on macro recovery as well as corporate earnings growth bottoming out.
The stimulus may well lead to a recovery in the iron ore price, which would be very good news for ASX mining shares like BHP, Rio Tinto, and Fortescue.
Sector rotation
Why is Chinese economic stimulus causing a hit to ASX bank shares?
It appears to be because some institutional investors are rotating out of (selling) their bank holdings and buying ASX mining shares. Fund managers don't have infinite funds; they need to raise the money from one area to buy in another.
Bell Potter strategist Richard Coppleson was quoted by the AFR who said:
These measures by China [were] a big shock to the market, but it's like a king-hit to the shorts – many have been completely blindsided by this who had been happily shorting every resource name they could, thinking it was easy money.
The 'long banks' story by institutional investors is likely to reverse – [Tuesday] probably marks the day that the long bank trade was terminated, banks have seen their highs.
Just over a week ago, I reported on comments from WAM Leaders Ltd (ASX: WLE) portfolio manager John Ayoub who said:
The easy trade has been sell resources and buy banks, but when that unwinds, there's going to be a rapid snapback.
So we need to get ahead of that and start building positions, which we're doing now.
It appears that we may have reached that turning point.
