Behind the sputtering bank sell-off
Investors are eager to sell expensive bank shares. With no major issues in sight, a China-driven switch to mining stocks seemed possible. It hasn't held up.
Uncertainty and disappointment around Chinese stimulus measures would not normally be a trigger point for Australian bank shares.
But when investors are stacked to the gills with expensive bank shares and looking for reasons to sell, economic acceleration in China — driving increased demand for Australian commodities — presents a good opportunity to switch from banks to miners.
This was a key factor in the late September bank sell-off, driven by market leader and "widowmaker" Commonwealth Bank. Since then, as confidence in Chinese initiatives has waned, banks have stabilised.
Indeed, since concerns about bank overvaluation grew louder in March, the financials index has exhibited a classic “saw-tooth” pattern, with rapid sell-offs followed by gradual recoveries to new highs. There have now been five such sell-offs since March.
