One of the best performing areas of the market today has been the banking sector.
The big four banks have all recorded strong gains today and are powering the S&P/ASX 200 Index (ASX: XJO) notably higher.
What's happening in the banking sector today?
Here's a snapshot of what is happening in the banking sector this afternoon:
- The Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares price is currently up 4.75% to $16.33.
- The Commonwealth Bank of Australia (ASX: CBA) share price is up 1.5% to $59.89.
- The National Australia Bank Ltd. (ASX: NAB) share price has pushed 4% higher to $16.38
- The Westpac Banking Corp (ASX: WBC) share price is the best performer with a 5% gain to $16.10.
Why are the big four banks charging higher today?
With no news out of any of the banks or broker notes that I'm aware of, today's strong gains are a little bit of a mystery.
However, I suspect that investors are buying the big four banks on the belief that they have been oversold during the pandemic.
Australia will undoubtedly suffer economically from the pandemic, but the surprisingly low infection rate and the rapid reopening of the country appears to have caught even the most positive economists by surprise.
Combined with the Federal Government's stimulus packages and the Reserve Bank's rate cuts, Australia's economic future doesn't look anywhere near as bleak as other countries.
This could ultimately mean that the big four banks have overestimated the provisions they have announced over the last few weeks. Especially if a successful vaccine is developed sooner rather than later.
What provisions have the banks made?
As a reminder, National Australia Bank was the first bank to announce provisions. On 27 April it revealed an $807 million top-up to its economic adjustment to reflect potential COVID-19 impacts.
This was followed the next day by Westpac, which announced approximately $1.6 billion of additional impairment charges predominantly related to COVID-19 impacts.
Within two days, with its interim results, ANZ Bank announced COVID-19 impacts of $1.031 billion.
And the last bank to move, was the Commonwealth Bank. Earlier this month Australia's largest bank made an additional credit provision of $1.5 billion for the potential longer term impacts of COVID-19.
If things go better than expected, these provisions could be partially reversed. Which would be a big boost to their future dividends.
Should you buy the banks?
Even after their strong gains this week, I still see a lot of value in the big four banks and would be a buyer of all of them at these levels.
Though, my preference remains Commonwealth Bank due to its overall quality.
