Aus housing finance
Housing finance data is finally (more firmly) rolling over, and that’s before the mortgage rates have meaningfully gone up!
And by number (in original, rather than seasonally adjusted) falling away just as quickly as by value.
It illustrates the difficult/complex/tricky trade with the banks. Generally speaking, these are still very elevated financing levels for the banks, and thus are good drivers of profit when coupled with higher prices (here, meaning higher mortgage rates).
As such, it should drive earnings over time, even if they decline by quite a bit further.
That said, the market isn’t usually keen on a falling anything. It’s a bit like the argument in commodity stocks. People expect the commodity prices to fall, but they are so high, on average, that even a fall still represents great yields.
Now, both arguments are pretty shaky, and incomplete to me. It is more an exercise in trying to think through the narratives and how the market thinks about this sectoral exposure.
In the end, we net it out by saying a) “banks have good leverage to higher rates, and rates are going up” and b) “CBA is expensive”. As such, we wind up with an underweight to the banks, and a general preference for the insurance companies to provide our (hopeful) alpha from rising rates.
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