Brokers, analysts, investors and bankers are all scrambling to answer the same question: why did Commonwealth Bank of Australia’s shares surge so dramatically on Tuesday? Three theories stood out.
1. The US buyer
Richard Coppleson, director of institutional sales and trading at Bell Potter, suggested in his widely read Coppo Report newsletter on Tuesday that a very large US institutional investor has been active in the Australian market in recent sessions, selling out of US stocks (as we are seeing across the global markets at present) and moving into Aussie stocks. When US investors move like this, Coppleson says, they often buy the banks – and they do not care whether us locals think they are overvalued.
Some veterans on equity desks were sceptical about the “sell US, buy Australia” part of this narrative. But they agreed fingers were pointing offshore, partly because of the huge volumes seen on Tuesday; about 6.3 million CBA shares were traded, compared with the average daily volume over the past 30 days of 2.8 million shares.
Further, large US institutions have been active in bank stocks in recent weeks. A sudden plunge in ANZ shares on March 25 was put down to an offshore broker’s lumpy order going through the market.
2. Flocking to the safest haven
One of the most interesting features of Tuesday’s CBA surge was the contrast with its rivals. Westpac rose just 0.1 per cent, while NAB and ANZ fell 0.5 per cent and 0.6 per cent respectively. For one bank watcher, this emphasises that CBA is the safest of the havens in the market. Our bank veteran helpfully provided a list of market pockets where investors currently fear to tread.
You cannot buy the S&P 500 or the Nasdaq Composite because of the policy uncertainty created by Trump.
You cannot buy anything positively correlated to China, which rules out the big miners.
You cannot buy Macquarie Group because it is not delivering the earnings growth it once did, and it is the bank most exposed to global macro.
Investors have worries about other giants such as CSL and the supermarkets, and believe premium increases in the insurance sector have probably reached their peak.
3. Going with the flow
Connected to CBA’s safe-haven status is the idea that it is a magnet for investment flows for different parts of the market.
One such inflow may be coming from Asia, where investors are looking to hide in big, liquid stocks that are not affected by tariffs and where some believe regional investors are still generally underweight CBA.
Another flow is from passive investment. CBA is now a staggering 11.5 per cent of the ASX 200, the next biggest stocks include BHP at 7.9 per cent, CSL at 4.9 per cent, Westpac at 4.5 per cent, NAB at 4.4 per cent, and Wesfarmers and ANZ at 3.6 per cent. So the passive bid remains strong. Once upon a time, active managers would buy or sell stocks that got out of whack, such as CBA. But the theory goes that the orders in the market from active managers are swamped by what one equities desk calls the “transactable liquidity” that passive brings.
Another flow is from the superannuation sector, which came into this year owning about 27 per cent of the banking sector....
...in three weeks, the company delivers its third quarter trading update. The other three big banks deliver their half-year results around the same time.
Those results will confirm what we already know about CBA: it’s the best-run, most dominant bank in the country. That’s very valuable in an uncertain world. But how much more valuable it could or should get is the burning question for investors.
AFR
CBA Price at posting:
$167.12 Sentiment: Hold Disclosure: Held
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