Big banks lead ASX tumble
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More news: The financial sector was the worst performing in the ASX 200 by afternoon trade, with the big four banks all in red.
The financial sector was down 1.27% while the wider index was 0.51% lower at 2:20pm AEDT.
Of the big banks, Westpac was the worst performing, down 1.99% to $32.5. It was followed by Commonwealth Bank (-1.63%), NAB (-1.29%) and ANZ (-0.51%). Macquarie Group also fell 1.47%.
Morgan Stanley outlined a bearish outlook on the Australian banking sector and downgraded Westpac due to a likely mortgage growth below system and a potentially higher-than-forecast expense growth.
Earlier this week, UBS analysts said they expected banks to underperform in 2025, with shares forecast to retreat over 5%.
Morgan Stanley downgrades Westpac, lifts ANZ rating
The news: Morgan Stanley analysts have outlined a bearish outlook on the Australian banking sector due to record price-to-earnings multiples. They also downgraded Westpac while lifting their view on ANZ.
The numbers: The brokerage cut Westpac to ‘underweight’ from ‘equal weight’, with a 12-month price target of $30 a share, but lifted ANZ to ‘equal weight’ from ‘underweight’ previously, with a price target of $27.80.
Westpac shares are down 0.54% to $32.98, while ANZ shares were up 0.44% to $29.50 in early trading on the ASX.
The context: Morgan Stanley analysts cited higher execution risk, likely lower mortgage growth and potentially higher-than-forecast expense growth as reasons for downgrading Westpac, with the lender currently trading at 16 times earnings.
On the other hand, ANZ’s price-to-earnings discount compared to peers was far wider than usual, the analysts said, while the outlook for rates and volume growth in the first half of 2025 along with good cost management should mitigate near-term earnings risks.
What they said: “We believe the major banks are expensive and current share prices are hard to justify based on their growth and return profiles. This increases the risk of under-performance relative to the ASX 200 in 2025, and makes such stocks vulnerable to a trading multiple de-rating,” the analysts warned.
The source: Morgan Stanley research
