Investing in ASX financial shares

ASX financial stocks encompass a broad range of companies, from insurers and wealth management providers to banks and stock market operators.

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What are ASX financial shares?

ASX-listed companies that offer loans, savings, insurance, and money management or financial services are known as ASX financial shares. They include a range of banking, insurance, asset management, and share brokerage businesses. 

While bank shares constitute a significant component of the ASX financial sector, the Australian share market lists many other financial services firms. These include insurance companies, stock market operators, and brokerage firms. In this article, we take a look at financial services firms other than banks and consider why they may be worth adding to your portfolio.

Why invest in them?

An investment in ASX financial shares can provide investors with diversification, short-term dividend income and the potential for long-term capital growth. 

The breadth of the financial sector means it comprises several sub-sectors – each subject to different influences that can impact bottom lines. 

Although economic forces affect each sub-sector differently, most financial shares tend to be cyclical. They perform favourably when the economy grows and typically do less well in economic downturns. This means ASX financial shares can be sensitive to economic cycles, resulting in share price volatility.

However, as the financial industry is one of the most critical components of developed economies, investing in this sector can be particularly rewarding.

Companies involved in wealth management and the stock market benefit from strong equity markets with substantial volumes of initial public offerings (IPOs)

Insurers also benefit from strong economies and stock markets. This is because insurers invest the money they receive from premiums. The returns earned on these investments generate a significant proportion of insurance company incomes. 

The recent rise in interest rates benefits financial stocks as it allows them to earn higher interest on their yielding assets. Insurers frequently hold plenty of fixed-interest securities to back their insurance policies. Increased rates earned on these securities help pump up profits. 

Top financial stocks on the ASX 

There are more than 400 companies listed in the financials sector of the ASX. You can invest in individual Australian finance companies or the sector as a whole via an exchange-traded fund (ETF)

The following three companies are some of Australia's most highly valued financial stocks (based on market capitalisation from high to low).

Top ASX financial stocksCompany description
QBE Insurance Group Ltd

A multinational insurance company headquartered in Sydney that

provides a range of insurance and reinsurance services to

individuals, businesses, and organisations worldwide
Insurance Australia Group Ltd

One of the largest general insurance companies in Australia and New Zealand

providing a wide range of general insurance products

Operates the Australian Stock Exchange as a clearing house,

payments systems facilitator, and market operator

QBE Insurance Group

International insurer and reinsurer QBE offers one of the broadest product ranges in Australia. It offers all major general insurance lines to cover personal and commercial risks. 

Products include home and contents, motor and travel insurance, and commercial insurance coverage for everything from cargo ships to wineries. At an international level, QBE covers various assets, including airports, air fleets, container ports, and construction activities. 

QBE announced a 1H23 net profit after tax (NPAT) of $400 million, compared with $48 million in 1H22. There has been strong growth in premiums and an increased renewal rate of 10.2%. Total investment income increased significantly, reflecting the substantial rise in interest rates. This allowed the company to declare an interim dividend of 14 cent per share, up from 9 cents per share in the prior corresponding period. . 

Insurance Australia Group 

Insurance Australia Group is behind some of Australia and New Zealand's most trusted and respected insurance brands. It provides a broad range of general insurance products to protect homes, lifestyles, and businesses. Its main businesses underwrite more than $12.5 billion in annual insurance premiums under brands including RACV, NRMA, and CGU. 

The insurer recently announced a 37% increase in insurance profit for FY23. NPAT increased 140% to $832 million. Gross written premiums grew 10.6%, ahead of guidance. While this increase was largely due to premium rises in response to inflation pressures, the company continued to grow its customer base and retention remained high.


ASX is the company behind the Australian Securities Exchange. It acts as a market operator, clearing house, and payment systems facilitator. ASX offers listings, trading, clearing, settlement, technology, data, and post-trade services. 

The company operates markets for various asset classes, including equities, fixed income, commodities, and energy. It oversees compliance with market operating rules, promoting high standards of corporate governance among listed companies.

Although listings revenue grew and the company saw increased demand for information and technical services in FY23, equity trading and payments activity was weaker. Total expenses were up 12.3% driven by investment in risk management and technology-related activities. Looking forward, ASX expects that reduced inflationary pressures and growing confidence around the peak for interest rate levels should be positive for trading volumes. 

What to look for when buying ASX financial shares

The right ASX financial shares can help grow your wealth, so it is worth taking your time when assessing a potential investment in this sector. Share investing involves risk, so it is imperative you understand your financial goals and investment strategy

Don't be afraid to get advice if you need it. Stay across the performance of the economy and financial market, and be aware of how changes can impact the financial outlook of shares in the finance sector. 

Keep up to date with announcements by the Reserve Bank of Australia, which sets the cash rate from which other economic interest rates are set. Research and compare companies in the sector you are considering buying shares in. 

Keep track of companies you are interested in and review their performance regularly. Consider how a company you are interested in might contribute to your share portfolio. 

Pros and cons of investing in financial shares 

There are benefits to investing in the financial sector, including:

  • A healthy economy requires a healthy financial sector to provide the services that keep non-financial businesses running. As the economy expands, more people and businesses require financial services, which can lead to increased revenue and profitability for financial firms.
  • Regulatory oversight can provide transparency and stability, with regulatory measures aiming to ensure the soundness and integrity of financial institutions.

The disadvantages of investing in financial shares include:

  • Financial shares tend to be cyclical – they perform well when the economy is growing and tend to do less well in economic downturns. This means ASX financial shares can be sensitive to economic cycles, resulting in share price volatility. 
  • Regulation can be costly – a change in the amount or type of regulation of financial companies can impact institutions' profitability and operations. 

Are ASX financial shares a good investment? 

ASX financial shares can provide an investor with valuable diversification benefits, dividends, and the potential for capital growth. Whether ASX financial stocks are a good investment depends on whether they align with your investing profile and goals. Whether a particular investment is right for you depends on your financial situation and risk tolerance. 

Financial stocks tend to be cyclical, with performance varying depending on economic cycles. For this reason, ASX financial shares may be more suitable for an investor with a longer time horizon. This provides time to ride out economic downturns and benefit from subsequent growth periods. 

Before making an investment decision about any financial product, you should consider the advice of your financial adviser or seek financial advice if required.

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a 'top share' is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a 'top share' by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.