After losing ground again yesterday, the Commonwealth Bank of Australia (ASX: CBA) share price is now down almost 14% in the last month.
CBA shares closed yesterday at $151.64.
It is now down more than 20% from its 12-month high of more than $191 per share back in June.
Despite this fall, CBA is the most expensive bank in the world. It still represents almost 10% of the S&P/ASX 200 Index (ASX: XJO).
Because of its dominant market share, it impacts shareholders who have direct exposure and those who don't necessarily own individual shares in the bank.
For example, many ASX ETFs are heavily weighted towards CBA shares.
Arian Neiron, CEO & Managing Director – Asia Pacific, VanEck, has provided fresh analysis on why this disproportionate impact can negatively impact portfolio performance.
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Why has the CBA share price fallen?
According to the report, there are a few key reasons why Australia's biggest bank has been heavily sold off in the last month.
These factors include:
- Its price-to-earnings (P/E) is too high
- Earnings per share growth is anaemic
- It is only yielding around 2%
- Its margins are under pressure
Neiron said the concentration risk for many Australian equity portfolios has existed for some time.
This kind of sector bias makes sense if you are bullish on the sector, but given the well-noted pressures on banks remain, with margins under pressure, an economic outlook not conducive to growth and defaults potentially rising given that rates are now not expected to fall again until well into 2026 (if again at all), an approach to Australian equities with less concentration approach to Australian equities may be prudent.
This isn't just exclusive to CBA shares either.
According to VanEck, Australian banks are the most expensive globally in the developed world on a 12-month forward price-to-earnings and price-to-book basis.
Banks make up over 20% of the ASX 200 benchmark index.
If valuations moved to be in line with global valuations, it could disproportionately impact many Australian portfolios.
The report said it's not just the sky-high valuations that are causing alarm for analysts.
Another headwind that Australia's banks must navigate is the economic outlook.
Slowing credit growth, sluggish productivity, and the potential that the next rate move will be higher could increase the potential for arrears, also putting pressure on lenders.
At what point does it become a value?
It's impossible to predict where CBA shares might bottom out. But many investors will be tempted to buy low (relatively) on Australia's biggest bank.
Last month, Macquarie put a price target of $106 on CBA shares, and Morgans has a price target of $96.07.
From yesterday's closing price of $151.64, this indicates a further fall of 30% to 36%.
With further headwinds in sight and a still inflated share price, it seems CBA shares may have further falls ahead.
