You have not saved any content. Explore our site now and save your favorite products, insights, and/or documents.
Australia’s major banks have long provided attractive investment opportunities – and they should continue to do so. However, as he Australian Prudential Regulation Authority (APRA) aims to bring the domestic banking sector into the top quartile of banks globally in the years ahead, Australia’s major banks will be required to issue more equity-like capital.
As a result, the most attractive opportunities for investors in the banking sector are shifting: Equity investors are likely to bear the burden of banks’ higher capital requirements in the form of less reliable dividends and lower returns on equity, while improved capital ratios and the better credit profiles that result should benefit investors in other securities ranked higher in the capital structure issued by banks, including bonds.
In our view, Australian investors should consider diversifying into a broader selection of global bank securities in their portfolios to potentially improve risk-adjusted returns in the years ahead. In particular, the debt and capital securities that banks in developed markets around the world are issuing to raise capital generally offer attractive yields and high credit quality. Investing in a global portfolio of bank capital securities can offer investors the added advantage of diversification at a time when Australia’s banking sector has increasing exposure to the domestic property market.
Portfolio Manager, Australia and Global
The dearth of homes for sale has underpinned the housing market’s surprising resilience and may further lift home prices despite reduced affordability.
As banks pull back from many types of lending, demand for capital is outpacing supply, providing the best potential opportunities in private credit since the GFC.
U.S. inflation cooled more than expected, and bond markets rallied, but the Fed is likely to remain in a long pause.
In our 2024 outlook, bonds emerge as a standout asset class, offering strong prospects, resilience, diversification, and attractive valuations compared with equities.
We see meaningful value in high quality, more liquid bonds that offer compelling yields and potential price appreciation should the economy weaken.
Tighter financial conditions prompted Federal Reserve officials to take a step back from data dependence, and suggest a higher bar for future hikes.
The ECB may raise rates further, but we believe the yield sell-off makes European duration increasingly attractive.
Sydney PIMCO Australia Pty Ltd ABN 54 084 280 508 AFS Licence 246862 Level 19, 5 Martin Place Sydney, NSW 2000 Australia 612-9279-1771
PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs.
PIMCO Australia Pty Ltd ABN 54 084 280 508 AFS Licence 246862 Level 19, 363 George Street Sydney, NSW 2000 Australia 612-9279-1771
The services and products provided by PIMCO Australia Pty Ltd are only available in Australia to persons who come within the category of wholesale clients as defined in the Corporations Act 2001. They are not available to persons who are retail clients, who should not rely on this communication. Investors should obtain relevant and specific professional advice before making any investment decision. The information contained herein does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision investors should consider, with or without the assistance of a securities advisor, whether the information contained herein is appropriate in light of their particular investment needs, objectives and financial circumstances.