Why ASX bank shares are so volatile right now

ASX bank shares like CBA and NAB have been hit hard in 2020, but what's driving share price volatility and is there a buying opportunity?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX bank shares have been a bit all over the place recently. They're certainly not alone, with many of the S&P/ASX 200 Index (ASX: XJO) constituents being particularly volatile.

The novel coronavirus pandemic has hit share valuations hard. There are concerns about the Aussie economy, and the big 4 banks are at the centre of that economy.

However, yesterday was a good day for ASX bank shares. The Commonwealth Bank of Australia (ASX: CBA) share price surged 4.20% while National Australia Bank Ltd (ASX: NAB) shares closed 6.33% higher.

But one good day doesn't mean the coast is clear. So, why are the Aussie bank shares so volatile and is it a good time to buy?

Why ASX bank shares are so volatile right now

One of the issues with the coronavirus pandemic is the great unknowns. No one knows for how long the virus will be around, and what the final toll of COVID-19 will be.

That makes valuing corporations and their future earnings quite tough. Sure, you can make educated guesses on which sectors will do well.

But the Aussie banks are the heart of the Aussie economy. They employ thousands directly and prop up many businesses around the country. They're also some of the largest corporations in the country and that means lots of buying and selling of ASX bank shares in recent weeks.

On the bullish side, you could argue the banks may be fine. They could earn additional interest on loan repayments for decades ahead, and have the implicit support of the Federal Government. Plenty of investors are buying up bank shares in the view that they're being oversold amidst the panic.

However, it's not all fine and rosy. Westpac Banking Corp (ASX: WBC) has flagged a $2.2 billion impairment as COVID-19 continues to bite. Many businesses and households are struggling and we may see more loan defaults. On top of that, the residential real estate market could be in for a downturn after decades of capital growth.

Is now a good time to buy?

I don't think I'll be buying ASX bank shares just yet. They're certainly strong dividend shares, and I think despite recent dividend cuts, will offer strong income in the years ahead.

However, there are some short-term challenges ahead. The rise of neobanks and disruption across the banking sector could hurt future growth.

That means ASX bank shares are not easy to value right now. If you're buying and holding for the long-term though, you could snap up a bargain in 2020.

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A businessman presents a company annual report in front of a group seated at a table
Bank Shares

The future of the Big 4 banks: key takeaways from Macquarie's 2025 Banking Symposium

What lies ahead for the big 4 banks?

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank.
Bank Shares

CBA shares are down 9% from their peak. Is it time to buy?

CBA shares are getting cheaper, but are they cheap yet?

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Bank Shares

The pros and cons of buying NAB shares in August

Is it a good time to invest in the major bank? Here’s my view.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »