The S&P/ASX 200 (^AXJO) (ASX: XJO) has once again turned south on Thursday, as local and foreign investors alike begin to turn their backs on Australia's largest corporations – in particular, the Big Four banks.
Since Monday last week, the index has lost a total of 5.3%, falling from what was nearly a four-and-a-half-year high of 5,209 points to 4,930.7 points at close of trading on Thursday.
One of the primary reasons behind the significant fall is the selling off of Australia's banks, which has seen National Australia Bank (ASX: NAB), ANZ (ASX: ANZ), Westpac (ASX: WBC) and Commonwealth (ASX: CBA) fall 12.1%, 8.9%, 9.2% and 8%, respectively, since last Monday.
Over the last 12 months, in what has been labeled 'the Blue Chip Bubble', investors have flocked towards the banks in search of high yielding defensive stocks. However, their share prices have become inflated well beyond their relative value, where it seems some investors became irrational about the price they would pay per stock.
Now, as the Australian dollar begins its descent against the US dollar and Japanese yen, analysts and investors alike have begun to realise that many of the blue chips may have run their course, and are decreasing their exposure to the banks as a result.
Foreign investors, who do not benefit from the franking credits that have appealed to local investors, are also now retreating. As offshore bond yields rally, foreign investors are finding better places to put their money. According to data from Bloomberg, one of the world's largest asset managers, BlackRock (NYSE: BLK), offloaded in excess of $100 million worth of shares in the banks last week.
If investors were looking for another sign that the banks may have run their race, shares in NAB fell yesterday by 4.03% as the stock went ex-dividend.
Foolish takeaway
Recognising the overvaluation of the Big Four and other large corporations, such as Telstra (ASX: TLS), some analysts are now advising that investors look towards companies with growth potential, such as BHP Billiton (ASX: BHP) or Rio Tinto (ASX: RIO), which have both heavily underperformed the index over the past 12 months. On the other hand, other analysts are arguing that as the banks begin to lose their value, their dividend yield will increase, which could attract further investment.
One thing is for certain however, the banks' current values still don't rationally reflect their future growth prospects, and still seem very expensive.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
