Hi dex,
Thanks for starting this thread, shame there’s not more discussion on the CBA forum.
My take is it all depends on what you forecast the future divs to be.
At current SP, yield is circa 5.8%.
As the SP falls further, this yield improves (assuming divs stay the same).
If divs don’t change, money surely will flood back into CBA as current interest rates are garbage.
As to the ‘virus’ effect, I’d be surprised to see it take 3-6 months to play out.
With its high rate of transmission, I would have thought 6-8 weeks at most from now. (Such is the function of the power of 2).
With that said, it all comes down to how well authorities can ‘contain’ the virus.
Obviously containment isn’t actually an option, as the time to contain was months ago, and it has spread across the globe already. My guess is that any measure in place by authorities to ‘contain’ at the moment are really there to slow the spread, such that we don’t all end up in the emergency department at the same time. I guess I’m implying that at some point we will all get and authorities know this well.
However, even if 3-6 months is what it takes, surely there has been an over reaction so far. Markets can be irrational, for sure, but my take is that yield will be a far greater forces than COVID.
So back to yield. Since CBA passed on the full RBA rate cut, and I assume the cost of money to CBA hasn’t fallen by that amount, then profits should fall. By how much I have no idea.
Should housing collapse, and defaults rise, then they will also be in strife. But then, by that point surly most sectors are stuffed too.
Anyway, for mine, I’m in my late 30’s and building a position for retirement (20-30 years off), so I’m chasing yield. Low $70’s is good value for me.
It was always too expensive at circa $90, as has most of the market been for some time.
It’s been about a 10 year bull market, and Trump’s economy has driven our markets up, coupled with low interest rates. A correction was always on the cards, seems COVID was the catalyst, but IMO not the primary reason.
I did wonder if a Bernie sanders nomination would rattle the markets and present another good buying opportunity, but it seems that is now unlikely. My guess is that as Biden becomes more certain to lead the democrats, markets will begin to stabilise.
Anyway, I’m waffling on now, happy to be taken to task for any of my assertions/predictions.
Would love to see a more active CBA forum.
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