Shares in Australia and New Zealand Banking Group (ASX: ANZ) have opened in the red this morning as each of the big banks continue their downward trend since the beginning of 2014.
In January big bank share prices fell hard.
As international investors responded to slowing growth in emerging markets and the Fed continued to wind back its bond-buying program, share prices of many big name blue chips have struggled to break even.
As seasoned investors know, share price falls are a buyer's best friend. However, as many writers at the Motley Fool Australia have explained, bank shares have not been cheap for quite some time. Although the drops now make dividend yields and price-earnings ratios look much more compelling, they do not make bank shares a flat-out 'buy' .
Instead investors should be reminded that it's the future, not the past, which is important and in the short term a number of factors are going against the big banks. Including a slowing domestic economy; increased competition from regional lenders like Bendigo and Adelaide Bank Limited (ASX: BEN), Bank of Queensland Limited (ASX: BOQ) and mortgage brokers, falling net interest margins and record low bad debts. So, although prices have fallen, it may be too early to get out the bunting.
Source: Google Finance
One bank stock to watch… closely
It's important we make investment decisions based on solid facts and minimal assumptions, like falling interest rates will bring a wave of demand for high-yielding bank stocks. That ship has sailed.
ANZ is one bank stock I've got my eye on. Although, despite my fondness, I will not buy it at current prices. However there are a few reasons it has been on my watchlist.
Firstly, since 2007 its focus has been on booming Asian markets. Growing its international and institutional banking has been a priority and a large success. But its also set up a number of branches in prominent areas across Hong Kong and invested in foreign banks assiduously. The group aims to drive 25% to 30% of revenue from its APEA division by 2017 and, so far, so good.
However, this also comes with a heightened degree of risk, and investors who are fretting over slower growth from Asian economies in the short term are selling their exposure in the bank. This is evident from the share price falls it experienced in January following lower than expected manufacturing data from China. For long-term investors this could present an opportunity.
Secondly – perhaps more importantly – its underexposure to mortgage and business banking markets affords it domestic growth potential. The Australian Financial Review today noted ANZ had outperformed its peers in terms of both mortgage market growth and business banking in 2013 – up 7.4% and 7.9%, respectively. For comparison it should be noted both the Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) hold considerably more mortgages than ANZ, whilst National Australia Bank Ltd. (ASX: NAB) derives the biggest proportion of its earnings from Australia's business banking market.
Foolish takeaway
Although ANZ continues to outperform its peers – which are each expected to record massive profits in FY14 – value is derived from the price you pay and even at current prices, the banks may not be 'cheap'. With above peer growth expected in 2014 and stronger than expected FY13 market share growth, ANZ is the bank stock investors should be watching.
