ANZ Bank's better than expected half-year result yesterday was the trigger for a buying scramble in the big four banks that single-handedly pushed Australia's major sharemarket index up 65 points, or 1.2 per cent, to a five-year high of 5191.2, its best level since June 30, 2008.
ANZ Bank's better than expected half-year result yesterday was the trigger for a buying scramble in the big four banks that single-handedly pushed Australia's major sharemarket index up 65 points, or 1.2 per cent, to a five-year high of 5191.2, its best level since June 30, 2008.
All four big bank stocks rose sharply -- Commonwealth Bank and ANZ by almost $2 -- as investors decided that the local lenders were not overvalued if you looked at their relative yield compared with most other asset classes.
Price to book ratios, relative price earnings ratios and pallid credit growth took a back seat as benchmarks to the prospect of fully franked dividends and even at yesterday's bullish closes, ANZ has the lowest fully franked prospective yield at 5 per cent.
CBA (up $1.85 at $73.45) and Westpac (up 68c at $33.80) are now of prospective yields of 5.1 per cent and 5.4 per cent respectively, according to Goldman Sachs, while NAB, (up 92c at $34) remains on a relatively juicy 5.8 per cent.
Indeed one of the best performers on the day was Bendigo and Adelaide Bank, a second-tier player, climbing 46c, or more than 4 per cent, to $11.06 as investors scoured the boards for yield plays. It is offering about 7 per cent fully franked.
"It's a yield game," said Richard Coppleson, a senior sales trader at Goldman Sachs.
"These stocks might be sold down a bit but they won't be sold off because there's a huge undercurrent of support for them from domestic and international investors.
"What people are starting to realise is that low interest rates are going to be around for a while, longer than most investors have ever seen, and people living on term deposits have seen returns drop from 6 per cent to just above 3 per cent within the last 12 months."
Greg Davis, chief investment officer Asia-Pacific for US-based investment giant Vanguard, said that current equity yields approaching 7 per cent in some stocks were "a much more appealing prospect" than current bond or term deposit rates of just over 3 per cent.
The S&P/ASX 200 index has risen almost 9.5 per cent in the past seven trading days and, while it is still well short of the 6828.70 all-time high it enjoyed on November 1, 2007, it is feeling strong momentum.
Yesterday was the sixth trading day rise in the past seven, during which time it has climbed 5.4 per cent.
Coppleson said he had a December target of 5600 on the index and that "while everyone's piling into bank stocks, some of the quality resources issues are looking very good value".
"Since June of last year we've seen two pullbacks of around 5 per cent, the first when President (Barack) Obama was re-elected and the second in early March, when there were worries about Cyprus, but in both cases buying momentum has turned the pullbacks round pretty quickly," Coppleson said.
Australia's sharemarket will nevertheless have to climb by 31.5 per cent to regain its pre-GFC levels, but one surprisingly underweight group that missed some of the 26 per cent rise on the market since June 30 last year has been Australia's $450 billion worth of self-managed super fund trustees.
While most have held a solid weighting in Australian equities -- long the core of any local portfolio -- their holding in cash has remained stubbornly high in recent months at almost 29 per cent. That compares with about 21-22 per cent for professional fund managers.
