How is this even happening?
This market has actually priced CBA relative to the SP500 index. Earnings growth much stronger in America. Diversification in earnings across 500 companies. SP500 has the best tech companies, and you can be certain the big AI winners are coming from the SP500, whether they are the big names like Meta, Microsoft ect, or smaller companies on the up.
Then there is CBA. A generic bank with no earnings growth. Growth is limited due to Australia dwindling GDP and CBA's capital restraints as a deposit taking institution.
Americans are the biggest capitalists in the world and are known for growth. Thier companies have small payout ratios as they reinvest profits to compounds returns. We are the opposite, especially CBA - returns majority of money to investors as management cant compound retained earnings.
Yet despite the bulls running in America, they are not as manic about their aggregate market as we are for 'the commonwealth bank'. My mind cannot comprehend the sheer audacity of our market to place such a premium on such a basic company.
Does the rally continue in perpetuity, 35 times earnings? 40 times earnings, 50 times earnings? Can CBA really continue to run ahead of the SP500? What's further comical is the SP500 is supposed to be a trendsetter for global markets. But CBA has run so far ahead. Since the 2024 election the SP500 has added 7%, CBA 15%. In the past year CBA 43%, SP500 20%. CBA has run so hard its now caught the SP500 in terms of its earnings multiple despite not being anywhere near the quality of the weighted average of the USA's top 500 companies. Does this actually continue?
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