The S&P/ASX 200 Index (ASX: XJO) officially entered market correction territory in March and the big four bank shares have not been immune from the broad sell-off,
Australia's benchmark index is now down 9% since the beginning of the month.
In this period:
- National Australia Bank Ltd (ASX: NAB) shares have fallen 10%
- ANZ Group Holdings Ltd (ASX: ANZ) shares have dropped 7.3%
- Westpac Banking Corp (ASX: WBC) shares are down roughly 5%
- Commonwealth Bank of Australia (ASX: CBA) shares have fallen 1.37%.
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What's impacting bank shares?
There are multiple factors putting pressure on big four bank shares.
Firstly, energy costs are rising as a result of the conflict in the Middle East.
This is reigniting global inflation pressures, complicating the outlook for central banks.
Additionally, CommBank economists note that persistently higher oil prices could weigh on household sentiment at a time when inflation is already pushing higher and interest rates look like climbing.
This is a headwind for mortgage borrowers and loan quality.
According to Commbank, the longer the conflict drags on, the more pressure banks will face through slower growth, stressed household budgets, and an uncertain interest rate environment.
I covered last week two possible outcomes from the current conflict and how investors may decide to construct their portfolios.
For now, the ASX big four remain in a difficult position – caught between a risk-off market and the broader economic damage an extended energy shock would inflict on their customers.
Is there any opportunity in ASX big four bank shares?
Based on current valuations from experts, it appears sentiment is largely cautious on ASX bank shares.
CBA recently received a sell rating from Medallion Financial Group.
The note out of the group said its shares are trading at a significant premium to peers despite having similar earnings growth outlook.
For Westpac, analyst targets indicate it could continue to fall in the near term.
14 analyst forecasts via TradingView have an average price target of $35.16 on Westpac shares.
From yesterday's closing price of $39.72, that indicates a downside of approximately 11%.
ANZ appears to have the most optimistic outlook from recent analysis.
Citi have recently retained their buy rating and $40.30 price target on ANZ shares.
This indicates a potential upside of 10%.
Finally, Samantha Menzies recently laid out the bull case for NAB shares after the recent 10% fall.
Analysts views on NAB shares are mixed, with price targets ranging from $30 – $50 per share compared to a current price hovering around $42.75.
Foolish takeaway
With messaging changing day to day regarding the Iran/USA conflict, it is extremely difficult to predict the future of blue-chip shares like the ASX big four.
A quick resolution could mean current valuations are an ideal entry point.
However if the conflict continues long-term, the more pressure these stocks may come under through subdued growth and unclear interest rate decisions.
