Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Betting against Australia’s Big Four banks has long been a source of painful losses in Asian investing circles. Now Commonwealth Bank of Australia, the largest of those outperformers, is rubbing salt in the wound. A seemingly inexplicable rally has pushed it to an eye-popping four times book value — almost twice as much as JPMorgan or its local rivals. ’Strewth, indeed.
CBA’s 19 per cent gains this year have opened up a significant lead over its three local peers which, along with the broader market, have managed at best 5 per cent. This month the giant lender became the first Australian company to top A$300bn ($196bn) in market value.
Viewed as a multiple of earnings, too, CBA’s valuation is among the world’s highest for a big bank. At 28 times analysts’ estimate of its profit for 2027, it beats big fast-growing players from racy emerging markets, like Brazil’s Nu Holdings or India’s HDFC, into a cocked hat.
Alas for boss Matt Comyn, this can’t all be attributed to his team. CBA’s performance isn’t sufficient to justify its gains. Return on equity, which was 13 per cent in 2024, is higher than local peers, but that has long been the case. By way of reference, JPMorgan, the world’s biggest listed bank, was 17 per cent last year.
The four Australian lenders have long looked pricey, averaging 2 times book value since 2007. That’s the lure leading investors to think the shares should fall — prompting the “widow-maker”, trader slang for a bet that brings only grief. Still, CBA’s current multiple is extraordinary.
The rally may well have been supported by global investors looking to reduce their exposure to Donald Trump’s US. More than half now expect non-US stocks to be the best performers over the next five years, according to Bank of America’s latest fund manager survey
CBA may be an outsize beneficiary of this trend. It accounts for 11.5 per cent of the local S&P/ASX 200 index, but a whopping 15.2 per cent of MSCI’s Australia benchmark, which global funds are far more likely to track, notes banker-turned-strategist Rupert Mitchell. While CBA’s heavy weighting is commensurate with its market capitalisation, incoming money may have created a short-term spike in demand for its stock, supporting the rally.
Australian banks can remain irrational for a lot longer than investors can remain solvent. Still, there are plenty of reasons for CBA’s valuation to come back to earth. At 2.6 per cent, its dividend yield is now just over half of its rivals’ levels. That may well spook Australian savers, which have long locked up a large chunk of its shares. Victims of the widow-maker might yet get some payback.
jennifer.hughes@ft.com
